10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2008
Commission File Number 1-6003
FEDERAL SIGNAL
CORPORATION
(Exact name of the Company as
specified in its charter)
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Delaware
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36-1063330
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1415 West 22nd Street,
Oak Brook, Illinois
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60523
(Zip Code)
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(Address of principal executive
offices)
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The Companys telephone number, including area code
(630) 954-2000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $1.00 per share,
with preferred share purchase rights
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the Company (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the Companys
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark if the registrant is a shell company, in
Rule 12b-2
of the Exchange
Act. Yes o No þ
State the aggregate market value of voting stock held by
nonaffiliates of the Company as of June 30, 2008: Common
stock, $1.00 par value $554,199,456
Indicate the number of shares outstanding of each of the
Companys classes of common stock, as of January 31,
2009: Common stock, $1.00 par value
47,371,122 shares
Documents
Incorporated By Reference
Portions of the definitive proxy statement for the 2009 Annual
Meeting of Shareholders are incorporated by reference in
Part III.
FEDERAL
SIGNAL CORPORATION
Index to
Form 10-K
This
Form 10-K
and other reports filed by Federal Signal Corporation and
subsidiaries (the Company) with the Securities and
Exchange Commission and comments made by management may contain
the words such as may, will,
believe, expect, anticipate,
intend, plan, project,
estimate and objective or the negative
thereof or similar terminology concerning the Companys
future financial performance, business strategy, plans, goals
and objectives. These expressions are intended to identify
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements include information concerning the Companys
possible or assumed future performance or results of operations
and are not guarantees. While these statements are based on
assumptions and judgments that management has made in light of
industry experience as well as perceptions of historical trends,
current conditions, expected future developments and other
factors believed to be appropriate under the circumstances, they
are subject to risks, uncertainties and other factors that may
cause the Companys actual results, performance or
achievements to be materially different.
These risks and uncertainties, some of which are beyond the
Companys control, include the cyclical nature of the
Companys industrial, municipal, government and commercial
markets, availability of credit and third-party financing for
customers, volatility in securities trading markets, economic
downturns, risks associated with suppliers, dealer and other
partner alliances, changes in cost competitiveness including
those resulting from foreign currency movements, technological
advances by competitors, increased warranty and product
liability expenses, compliance with environmental and safety
regulations, restrictive debt covenants, disruptions in the
supply of parts or components from sole source suppliers and
subcontractors, retention of key employees and general changes
in the competitive environment. These risks and uncertainties
include, but are not limited to, the risk factors described
under Item 1A, Risk Factors, in this
Form 10-K.
These factors may not constitute all factors that could cause
actual results to differ materially from those discussed in any
forward-looking statement. The Company operates in a continually
changing business environment and new factors emerge from time
to time. The Company cannot predict such factors nor can it
assess the impact, if any, of such factors on its financial
position or results of operations. Accordingly, forward-looking
statements should not be relied upon as a predictor of actual
results. The Company disclaims any responsibility to update any
forward-looking statement provided in this
Form 10-K.
PART I
Federal Signal Corporation, founded in 1901, was reincorporated
as a Delaware Corporation in 1969. The Company designs and
manufactures a suite of products and integrated solutions for
municipal, governmental, industrial and commercial customers.
Federal Signals portfolio of products includes safety and
security systems, vacuum loader vehicles, street sweepers, truck
mounted aerial platforms and waterblasters. Federal Signal
Corporation and its subsidiaries (referred to collectively as
the Company or Company herein, unless
context otherwise indicates) operates manufacturing facilities
in 21 plants in 9 countries around the world serving customers
in approximately 100 countries in all regions of the world.
Narrative
Description of Business
Products manufactured and services rendered by the Company are
divided into three major operating segments: Safety and Security
Systems, Fire Rescue and Environmental Solutions. The individual
operating companies are organized as such because they share
certain characteristics, including technology, marketing,
distribution and product application, which create long-term
synergies.
Financial information (net sales, operating income, depreciation
and amortization, capital expenditures and identifiable assets)
concerning the Companys three operating segments as of,
and for each of the three years in the period ended,
December 31, 2008 are included in Note 15 to the
Consolidated Financial Statements included under Item 8 of
Part II of this
Form 10-K,
incorporated herein by reference. Information regarding the
Companys discontinued operations is included in
Note 12 to the Consolidated Financial Statements included
under item 8 of Part II of this
Form 10-K,
incorporated herein by reference.
Safety
and Security Systems Group
Federal Signal Corporations Safety and Security Systems
Group designs, manufactures and deploys comprehensive safety and
security systems and products that help law enforcement,
fire/rescue and EMS, emergency operations and industrial
plant/facility first responders protect people, property and the
environment.
Offerings include systems for automated license plate
recognition, campus and community alerting, emergency vehicles,
first responder interoperable communications, industrial
communications and command, municipal networked security and
parking revenue and access control for municipal, governmental
and industrial applications. Specific products include access
control devices, lightbars and sirens, public warning sirens,
public safety software and automated license plate recognition
cameras.
Products are sold under the Federal Signal, Federal Signal VAMA,
Federal APD, Pauluhn, PIPS, Target Tech and Victor brand names.
The group operates manufacturing facilities in North America,
Europe and South Africa. Many of the groups products are
designed in accordance with various regulatory codes and
standards and meet agency approvals such as Underwriters
Laboratory (UL), International Electrotechnical Commission (IEC)
and American Bureau of Shipping (ABS).
Fire
Rescue Group
The Fire Rescue Group is the world leader in designing and
manufacturing sophisticated, vehicle-mounted, aerial platforms
for fire fighting, rescue, electric utility and industrial uses.
End customers include fire departments, industrial fire
services, electric utilities, maintenance rental companies for
applications such as fire fighting and rescue, transmission line
maintenance, and installation and maintenance of wind turbines.
The groups telescopic/articulated aerial platforms are
designed in accordance with various regulatory codes and
standards, such as European Norms (EN), National Fire Protection
Association (NFPA) and American National Standards Institute
(ANSI). In addition to equipment sales, the group sells parts,
service and training as part of a complete offering to its
customer base. The group manufactures in Finland and sells
globally under the Bronto Skylift brand name.
Segment results have been restated for all periods presented to
exclude the operations of the groups
E-ONE
business which were reclassified as discontinued operations and
sold in 2008.
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Environmental
Solutions Group
The Environmental Solutions Group manufactures and markets
worldwide a full range of street cleaning and vacuum loader
vehicles and high-performance water blasting equipment. Products
are also manufactured for the newer markets of hydro-excavation,
glycol recovery and surface cleaning. Products are sold under
the Elgin, RAVO, Vactor, Guzzler and Jetstream brand names. The
group manufactures its vehicles and equipment in the United
States and Europe.
Under the Elgin brand name, the Company sells the leading
U.S. brand of street sweepers primarily designed for
large-scale cleaning of curbed streets, parking lots and other
paved surfaces utilizing mechanical sweeping, vacuum and
recirculating air technology for cleaning. RAVO is a market
leader in Europe for high-quality, compact and self-propelled
sweepers that utilize vacuum technology for
pick-up.
Vactor is a leading manufacturer of municipal combination catch
basin/sewer cleaning vacuum trucks. Guzzler is a leader in
industrial vacuum loaders that clean up industrial waste or
recover and recycle valuable raw materials. Jetstream
manufactures high pressure water blast equipment and accessories
for commercial and industrial cleaning and maintenance
operations. In addition to equipment sales, the group is
increasingly engaged in the sale of parts and tooling, service
and repair, equipment rentals and training as part of a complete
offering to its customer base.
Tool
Group
In 2008, the Company sold the remaining businesses within the
Tool Group, referred to collectively as Die and Mold
Operations. The results of the Die and Mold Operations are
reported within discontinued operations for all periods
presented.
Financial
Services
The Company ceased entering into new financial services
activities in 2008 and sold 92% of its municipal lease
portfolio. The operations and gain upon sale are reported within
discontinued operations. At December 31, 2008, the
remaining leases and floor plan receivable balances, net of
reserves, of $5.6 million were included on the balance
sheet as Assets of Discontinued Operations.
Marketing
and Distribution
The Safety and Security Systems Group companies sell to
industrial customers through approximately 2,000
wholesalers/distributors who are supported by Company sales
personnel
and/or
independent manufacturers representatives. Products are
also sold to municipal and governmental customers through more
than 900 active independent distributors as well as through
original equipment manufacturers and direct sales. International
sales are made through the groups independent foreign
distributors or on a direct basis. The Company also sells
comprehensive integrated warning, interoperable communications
and parking systems through a combination of a direct sales
force and distributors.
Fire Rescue and Environmental Solutions use dealer networks and
direct sales to service customers generally depending on the
type and location of the customer. The Environmental Solutions
direct sales channel concentrates on the industrial, utility and
construction market segments while the dealer networks focus
primarily on the municipal markets. The Company believes its
national and global dealer networks for vehicles distinguishes
it from its competitors. Dealer representatives demonstrate the
vehicles functionality and capability to customers and
service the vehicles on a timely basis.
Customers
and Backlog
Approximately 29%, 25% and 46% of the Companys total 2008
orders were to U.S. municipal and government customers,
U.S. commercial and industrial customers, and
non-U.S. customers,
respectively. No single customer accounted for 10% or more of
the Companys business.
The Companys U.S. municipal and government customers
depend on tax revenues to support spending. A sluggish
industrial economy, therefore, will eventually impact a
municipalitys revenue base as tax receipts decline
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due to higher levels of unemployment and declining profits.
Additionally, a decline in housing prices may yield lower
property tax receipts. During 2008, the Companys
U.S. municipal and government orders declined 12% from
2007, compared to a 5% increase in these orders in 2007 compared
to 2006.
Orders to the U.S. commercial and industrial segment relate
to the energy industries, principally oil and gas production and
coal mining, to industrial contractors and rental companies and
to parking operators.
Roughly 70% of orders to
non-U.S. customers
flow to municipalities and governments while 30% flow to
industrial and commercial customers. The municipal and
government segment is essentially similar to the U.S. in
that it is largely dependent on tax revenues to support
spending. Of the
non-U.S. orders,
the Company typically sells approximately 50% of its products
into Europe, 15% into the Middle East and Africa, and less than
10% in any other particular region.
The Companys backlog totaled $301 million at
December 31, 2008, which averages to nearly four months of
shipments overall. Backlogs vary by group due to the nature of
the Companys products and buying patterns of its
customers. Safety and Security Systems typically maintains an
average backlog of two months of shipments, Environmental
Solutions three to four months of shipments and Fire Rescue
normally six months of shipments.
Suppliers
The Company purchases a wide variety of raw materials from
around the world for use in the manufacture of its products,
although the majority of current purchases are from North
American sources. To minimize availability, price and quality
risk, the Company is party to numerous strategic supplier
arrangements. Although certain materials are obtained from
either a single-source supplier or a limited number of
suppliers, the Company has identified alternative sources to
minimize the interruption to its business in the event of supply
problems.
Components critical to the production of the Companys
vehicles, such as engines and hydraulic systems, are purchased
from a select number of suppliers. The Company also purchases
raw and fabricated steel as well as commercial chassis with
certain specifications from a few sources.
The Company believes it has adequate supplies or sources of
availability of the raw materials and components necessary to
meet its needs. However, there are risks and uncertainties with
respect to the supply of certain of these raw materials that
could impact their price, quality and availability in sufficient
quantities.
Competition
Within specific product categories and domestic markets, the
Safety and Security Systems Group companies are among the
leaders with three to four strong competitors and several
additional ancillary market participants. The groups
international market position varies from leader to ancillary
participant depending on the geographic region and product line.
Generally, competition is intense with all of the groups
products, and purchase decisions are made based on competitive
bidding, price, reputation, performance and servicing.
Within the Fire Rescue Group, Bronto Skylift is established as
the global leader for aerial platforms used in fire fighting,
rescue and industrial markets. Competitor offerings can include
trailer mounted articulated aerials and traditional fire trucks
with ladders. Bronto competes on product performance where it
holds technological advantages in its designs, materials and
production processes.
Within the Environmental Solutions Group, Elgin is recognized as
the market leader among several domestic sweeper competitors and
differentiates itself primarily on product performance. RAVO,
the Companys Dutch compact sweeper manufacturer, also
competes on product performance through its vacuum technology
and successfully leads in market share for mid-sized sweepers
among several regional European manufacturers. Vactor and
Guzzler both maintain the leading domestic position in their
respective marketplaces by enhancing product performance with
leading technology and application flexibility. Jetstream is a
market leader in the in-plant cleaning segment of the
U.S. waterblast industry competing on product performance
and rapid delivery.
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Research
and Development
The information concerning the Companys research and
development activities included in Note 15 of the
Consolidated Financial Statements included under Item 8 of
Part II of this
Form 10-K
is incorporated herein by reference.
Patents
and Trademarks
The Company owns a number of patents and possesses rights under
others to which it attaches importance, but does not believe
that its business as a whole is materially dependent upon any
such patents or rights. The Company also owns a number of
trademarks that it believes are important in connection with the
identification of its products and associated goodwill with
customers, but no material part of the Companys business
is dependent on such trademarks.
Employees
The Company employed over 3,300 people in ongoing
businesses at the close of 2008. Approximately 32% of the
Companys domestic hourly workers were unionized at
December 31, 2008. The Company believes relations with its
employees continue to be good.
Governmental
Regulation of the Environment
The Company believes it substantially complies with federal,
state and local provisions that have been enacted or adopted
regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment. Capital
expenditures in 2008 attributable to compliance with such laws
were not material. The Company believes that the overall impact
of compliance with environmental regulations will not have a
material effect on its future operations.
Seasonality
Certain of the Companys businesses are susceptible to the
influences of seasonal buying or delivery patterns. The
Companys businesses which tend to have lower sales in the
first calendar quarter compared to other quarters as a result of
these influences are street sweeping, fire rescue products,
outdoor warning, emergency signaling products and parking
systems.
Additional
Information
The Company makes its Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
other reports and information filed with the SEC and amendments
to those reports available, free of charge, through its Internet
website
(http://www.federalsignal.com)
as soon as reasonably practical after it electronically
files or furnishes such materials to the SEC. Additionally, the
Company makes its proxy statement and its Annual Report to
stockholders available at the same internet website
(http://www.federalsignal.com),
free of charge, when sent to stockholders prior to the meeting
date. All of the Companys filings may be read or copied at
the SECs Public Reference Room at 100 F. Street, N.E.,
Washington, DC 20549. Information on the operation of the Public
Reference Room can be obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet website
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding issuers that file electronically.
We may occasionally make forward-looking statements and
estimates such as forecasts and projections of our future
performance or statements of our plans and objectives. These
forward-looking statements may be contained in, among other
things, filings with the Securities and Exchange Commission,
including this Annual Report on
Form 10-K,
press releases made by us and in oral statements made by our
officers. Actual results could differ materially from those
contained in such forward-looking statements. Important factors
that could cause our actual
4
results to differ from those contained in such forward-looking
statements include, among other things, the risks described
below.
The
execution of our growth strategy is dependent upon the continued
availability of credit and
third-party
financing arrangements for our customers.
The recent economic downturn has resulted in tighter credit
markets, which could adversely affect our customers
ability to secure the financing necessary to proceed or continue
with purchases of our products and services. Our customers
or potential customers inability to secure financing for
projects could result in the delay, cancellation or down-sizing
of new purchases or the suspension of purchases already under
contract, which could cause a decline in the demand for our
products and services and negatively impact our revenues and
earnings.
We rely
on access to financial markets to finance a portion of our
working capital requirements and support our liquidity needs.
Access to these markets may be adversely affected by factors
beyond our control, including turmoil in the financial services
industry, volatility in securities trading markets and general
economic downturns.
We draw upon our revolving credit facility and our operating
cash flow to fund working capital needs, capital expenditures,
strategic acquisitions, pension contributions, debt repayments,
share repurchases and dividends. Market disruptions such as
those currently being experienced in the U.S. and abroad
have materially impacted liquidity in the credit and debt
markets, making financing terms for borrowers less attractive
and in certain cases have resulted in the unavailability of
certain types of financing. Continued uncertainty in the
financial markets may negatively impact our ability to access
additional financing or to refinance our existing credit
facility or existing debt arrangements on favorable terms or at
all, which could negatively affect our ability to fund current
and future operations as well as future acquisitions and
development. These disruptions may include turmoil in the
financial services industry, unprecedented volatility in the
markets where our outstanding securities trade, and general
economic downturns in the areas where we do business. If we are
unable to access monies at competitive rates, or if our
short-term or long-term borrowings costs dramatically increase,
our ability to finance our operations, meet our short-term
obligations and implement our operating strategy could be
adversely affected.
Our
financial results are subject to considerable
cyclicality.
Our ability to be profitable depends heavily on varying
conditions in the United States government and municipal markets
and the overall United States economy. The industrial markets in
which we compete are subject to considerable cyclicality, and
move in response to cycles in the overall business environment.
Many of our customers are municipal governmental agencies, and
as such, we are dependent on municipal government spending.
Spending by our municipal customers can be affected by local
political circumstances, budgetary constraints, and other
factors. The United States government and municipalities depend
heavily on tax revenues as a source of their spending and,
accordingly, there is a historical correlation, of a one or two
year lag between the overall strength of the United States
economy and our sales to the United States government and
municipalities. Therefore, downturns in the United States
economy are likely to result in decreases in demand for our
products. During previous economic downturns, we experienced
decreases in sales and profitability, and we expect our business
to remain subject to similar economic fluctuations in the future.
The
inability to obtain raw materials, component parts, and/or
finished goods in a timely and
cost-effective
manner from suppliers would adversely affect our ability to
manufacture and market our products.
We purchase raw materials and component parts from suppliers to
be used in the manufacturing of our products. In addition, we
purchase certain finished goods from suppliers. Changes in our
relationships with suppliers or increases in the costs of
purchased raw materials, component parts or finished goods could
result in manufacturing interruptions, delays, inefficiencies or
our inability to market products. In addition, our profit
margins would decrease if prices of purchased raw materials,
component parts or finished goods increase and we are unable to
pass on those increases to our customers.
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We
operate in highly competitive markets.
The markets in which we operate are highly competitive. The
intensity of this competition, which is expected to continue,
can result in price discounting and margin pressures throughout
the industry and adversely affects our ability to increase or
maintain prices for our products. In addition, certain of our
competitors may have lower overall labor or material costs.
We have
international operations that are subject to foreign economic
and political uncertainties.
Our business is subject to fluctuations in demand and changing
international economic and political conditions which are beyond
our control. During 2008, approximately 43% of our sales were to
customers outside the United States; with approximately 32% of
sales being supplied from our overseas operations. We expect a
significant and increasing portion of our revenues and profits
to come from international sales for the foreseeable future.
Operating in the international marketplace exposes us to a
number of risks, including abrupt changes in foreign government
policies and regulations and, in some cases, international
hostilities. To the extent that our international operations are
affected by unexpected and adverse foreign economic and
political conditions, we may experience project disruptions and
losses which could significantly reduce our revenues and profits.
Some of our contracts are denominated in foreign currencies,
which result in additional risk of fluctuating currency values
and exchange rates, hard currency shortages and controls on
currency exchange. Although currency exposure is hedged in the
short term, over the longer term changes in the value of foreign
currencies could increase our U.S. dollar costs for, or
reduce our U.S. dollar revenues from, our foreign
operations. Any increased costs or reduced revenues as a result
of foreign currency fluctuations could affect our profits.
Failure
to keep pace with technological developments may adversely
affect our operations.
We are engaged in an industry which will be affected by future
technological developments. The introduction of products or
processes utilizing new technologies could render our existing
products or processes obsolete or unmarketable. Our success will
depend upon our ability to develop and introduce on a timely and
cost-effective basis new products, processes and applications
that keep pace with technological developments and address
increasingly sophisticated customer requirements. We may not be
successful in identifying, developing and marketing new
products, applications and processes and product or process
enhancements. We may experience difficulties that could delay or
prevent the successful development, introduction and marketing
of product or process enhancements or new products, applications
or processes. Our products, applications or processes may not
adequately meet the requirements of the marketplace and achieve
market acceptance. Our business, operating results and financial
condition could be materially and adversely affected if we were
to incur delays in developing new products, applications or
processes or product or process enhancements or if our products
do not gain market acceptance.
Our
ability to operate effectively could be impaired if we fail to
attract and retain key personnel.
Our ability to operate our businesses and implement our
strategies depends, in part, on the efforts of our executive
officers and other key employees. In addition, our future
success will depend on, among other factors, our ability to
attract and retain qualified personnel, including finance
personnel, research professionals, technical sales professionals
and engineers. The loss of the services of any key employee or
the failure to attract or retain other qualified personnel could
have a material adverse effect on our business or business
prospects.
We may
incur material losses and costs as a result of product
liability, warranty, recall claims or other lawsuits or claims
that may be brought against us.
We are exposed to product liability and warranty claims in the
normal course of business in the event that our products
actually or allegedly fail to perform as expected or the use of
our products results, or is alleged to result, in bodily injury
and/or
property damage. Accordingly, we could experience material
warranty or product liability costs in the future and incur
significant costs to defend against these claims. We carry
insurance and maintain reserves for product liability claims.
However, we cannot be assured that our insurance coverage will
be adequate if such claims do arise, and any liability not
covered by insurance could have a material adverse impact on our
results
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of operations and financial position. A future claim could
involve the imposition of punitive damages, the award of which,
pursuant to state laws, may not be covered by insurance. In
addition, warranty or other claims are not typically covered by
insurance coverage. Any product liability or warranty issues may
adversely impact our reputation as a manufacturer of high
quality, safe products and may have a material adverse effect on
our business.
The costs
associated with complying with environmental and safety
regulations could lower our margins.
We, like other manufacturers, continue to face heavy
governmental regulation of our products, especially in the areas
of the environment and employee health and safety. Complying
with environmental and safety requirements has added and will
continue to add to the cost of our products, and could increase
the capital required. While we believe that we are in compliance
in all material respects with these laws and regulations, we may
be adversely impacted by costs, liabilities or claims with
respect to our operations under existing laws or those that may
be adopted. These requirements are complex, change frequently
and have tended to become more stringent over time. Therefore,
we could incur substantial costs, including cleanup costs, fines
and civil or criminal sanctions as a result of violations, or
liabilities under, environmental laws and safety regulations.
We are
subject to a number of restrictive debt covenants.
Our credit facility and other debt instruments contain certain
restrictive debt covenants and other customary events of default
that may hinder our ability to continue operating or to take
advantage of attractive business opportunities. These
restrictive covenants include, among other things, an interest
coverage ratio of 3.00:1 in all quarters effective with the
first quarter of 2009 and a minimum net worth of
$275.0 million at all times. Our ability to comply with
these restrictive covenants may be affected by the other factors
described in this Risk Factors section and other
factors outside our control. Failure to comply with one or more
of these restrictive covenants may result in an event of
default. Upon an event of default, if not waived by our lenders,
our lenders may declare all amounts outstanding as due and
payable. If we are unable to comply with the restrictive
covenants in the future, we would be required to obtain further
modifications from our lenders or secure another source of
financing. If our current lenders accelerate the maturity of our
indebtedness, we may not have sufficient capital available at
that time to pay the amounts due to our lenders on a timely
basis. In addition, these restrictive covenants may prevent us
from engaging in transactions that benefit us, including
responding to changing business and economic conditions and
taking advantage of attractive business opportunities.
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Item 1B.
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Unresolved
Staff Comments.
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None.
As of December 31, 2008, the Company utilized 10 principal
manufacturing plants located throughout North America, as
well as 9 in Europe, 1 in South Africa and 1 in the Far East.
In total, the Company devoted approximately 1.1 million
square feet to manufacturing and 0.8 million square feet to
service, warehousing and office space as of December 31,
2008. Of the total square footage, approximately 47% is devoted
to the Safety and Security Systems Group, 8% to the Fire Rescue
Group and 45% to the Environmental Solutions Group.
Approximately 22% of the total square footage is owned by the
Company with the remaining 78% being leased.
All of the Companys properties, as well as the related
machinery and equipment, are considered to be well-maintained,
suitable and adequate for their intended purposes. In the
aggregate, these facilities are of sufficient capacity for the
Companys current business needs.
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Item 3.
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Legal
Proceedings.
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The information concerning the Companys legal proceedings
included in Note 14 of the financial statements contained
under Item 8 of Part II of this
Form 10-K
is incorporated herein by reference.
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Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
No matters were submitted to a vote of security holders through
the solicitation of proxies or otherwise during the three months
ended December 31, 2008.
|
|
Item 4A.
|
Executive
Officers.
|
The following is a list of the Companys executive
officers, their ages, business experience and positions and
offices as of February 1, 2009:
William G. Barker, III, age 50, was appointed Senior
Vice President and Chief Financial Officer in December 2008.
Mr. Barker was Senior Vice President and Chief Financial
Officer of Sun-Times Media Group from 2007 to 2008. He was Vice
President, Finance and Strategy, Gatorade of PepsiCo, Inc. from
2001 to 2007.
David E. Janek, age 45, was appointed Vice President and
Controller in August 2008. Mr. Janek was Vice President and
Treasurer from 2006 to 2008 and was Vice President Finance,
Safety and Security Systems Group from 2002 to 2006.
Fred H. Lietz, age 54, was appointed Vice President and
Chief Procurement Officer in May 2007. Mr. Lietz was Vice
President of Global Procurement and Logistics at Andrew
Corporation from 2001 to 2006.
David R. McConnaughey, age 52, was appointed President of
Federal Signals Safety and Security Systems Group in March
2006. Previously, Mr. McConnaughey was President Maytag All
Brand Service from 2005 to March 2006 and Vice President Maytag
All Brand Service from 2004 to 2005. Previously,
Mr. McConnaughey held several roles with Maytag Corporation
including Vice President and G.M. Amana Brand 2003 to 2004 and
Vice President Supply Chain 2002 to 2003.
William H. Osborne, age 48, was appointed Chief Executive
Officer and President in September 2008. Mr. Osborne was
President and Chief Executive Officer of Ford of Australia in
2008. From 2005 to 2008 Mr. Osborne was the President and
Chief Executive Officer of Ford of Canada and from 2003 to 2005
he was the Executive Director, Pickup Truck and Commercial
Vehicles, North American Truck Business of Ford Motor Company.
Esa Peltola, age 57, was appointed President of Bronto
Skylift Oy Ab in July 2007. Mr. Peltola was Managing
Director of Bronto Skylift from 1998 to 2007.
Jennifer L. Sherman, age 44, was appointed Senior Vice
President, Human Resources, General Counsel and Secretary in
April 2008. Ms. Sherman was Vice President, General Counsel
and Secretary from 2004 to 2007 and was Deputy General Counsel
and Assistant Secretary from 1998 to 2004.
Mark D. Weber, age 51, was appointed President of the
Environmental Solutions Group in April 2003. Mr. Weber was
Vice President Sweeper Products for the Environmental Solutions
Group from 2002 to 2003 and General Manager of Elgin Sweeper
Company from 2001 to 2002.
These officers hold office until the next annual meeting of the
Board of Directors following their election and until their
successors have been elected and qualified.
There are no family relationships among any of the foregoing
executive officers.
PART II
|
|
Item 5.
|
Market
for Companys Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
The Companys common stock is listed and traded on the New
York Stock Exchange (NYSE) under the symbol FSS. At
December 31, 2008, there were no material restrictions on
the Companys ability to pay dividends. The information
concerning the Companys market price range data included
in Note 18 of the Consolidated Financial Statements
contained under Item 8 of Part II of this
Form 10-K
is incorporated herein by reference.
As of January 31, 2009, there were 2,711 holders of record
of the Companys common stock.
8
The following graph compares the cumulative
5-year total
return provided to shareholders on the Companys common
stock relative to the cumulative total returns of the Russell
2000 index, the S&P Industrials index, and the S&P
Midcap 400 index. An investment of $100 (with reinvestment of
all dividends) is assumed to have been made in our common stock
and in each index on December 31, 2003 and its relative
performance is tracked through December 31, 2008.
Comparison
of 5 Year Cumulative Total Return*
Federal
Signal Corporation
*$100 invested on 12/31/03 in stock & index-including
reinvestment of dividends. Fiscal year ending December 31.
Copyright
©
2009 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
12/03
|
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|
12/04
|
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|
12/05
|
|
|
12/06
|
|
|
12/07
|
|
|
12/08
|
Federal Signal Corporation
|
|
|
|
100.00
|
|
|
|
|
103.05
|
|
|
|
|
88.90
|
|
|
|
|
96.44
|
|
|
|
|
68.63
|
|
|
|
|
51.29
|
|
Russell 2000
|
|
|
|
100.00
|
|
|
|
|
118.33
|
|
|
|
|
123.72
|
|
|
|
|
146.44
|
|
|
|
|
144.15
|
|
|
|
|
95.44
|
|
S&P Midcap 400
|
|
|
|
100.00
|
|
|
|
|
116.48
|
|
|
|
|
131.11
|
|
|
|
|
144.64
|
|
|
|
|
156.18
|
|
|
|
|
99.59
|
|
S&P Industrials
|
|
|
|
100.00
|
|
|
|
|
118.03
|
|
|
|
|
120.78
|
|
|
|
|
136.83
|
|
|
|
|
153.29
|
|
|
|
|
92.09
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
The information concerning the Companys quarterly dividend
per share data included in Note 18 of the Consolidated
Financial Statements contained under Item 8 of Part II
of this
Form 10-K
is incorporated herein by reference. The payment of future
dividends is at the discretion of the Companys Board of
Directors and will depend, among other things, upon future
earnings and cash flows, capital requirements, the
Companys general financial condition, general business
conditions and other factors. Accordingly, the Companys
Board of Directors may at any time reduce or eliminate the
Companys quarterly dividend based on these factors.
9
|
|
Item 6.
|
Selected
Financial Data.
|
The following table presents the selected financial information
of the Company as of, and for each of the five years in the
period ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Operating Results (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(a)
|
|
$
|
958.8
|
|
|
$
|
934.3
|
|
|
$
|
792.7
|
|
|
$
|
697.0
|
|
|
$
|
610.0
|
|
Income before income taxes(a)
|
|
|
26.3
|
|
|
|
53.6
|
|
|
|
40.0
|
|
|
|
38.2
|
|
|
|
23.9
|
|
Income from continuing operations(a)
|
|
|
31.3
|
|
|
|
39.7
|
|
|
|
31.2
|
|
|
|
39.7
|
|
|
|
19.3
|
|
Operating margin(a)
|
|
|
5.8
|
%
|
|
|
8.0
|
%
|
|
|
7.5
|
%
|
|
|
7.6
|
%
|
|
|
6.1
|
%
|
Return on average common shareholders equity
|
|
|
(26.2
|
)%
|
|
|
13.2
|
%
|
|
|
6.0
|
%
|
|
|
(1.2
|
)%
|
|
|
(0.6
|
)%
|
Common Stock Data (per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations diluted
|
|
$
|
0.66
|
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
|
$
|
0.82
|
|
|
$
|
0.40
|
|
Cash dividends per share
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.40
|
|
Market price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
17.50
|
|
|
$
|
17.00
|
|
|
$
|
19.75
|
|
|
$
|
17.95
|
|
|
$
|
20.56
|
|
Low
|
|
|
5.10
|
|
|
|
10.82
|
|
|
|
12.69
|
|
|
|
13.80
|
|
|
|
15.75
|
|
Average common shares outstanding (in millions)
|
|
|
47.7
|
|
|
|
47.9
|
|
|
|
48.0
|
|
|
|
48.2
|
|
|
|
48.1
|
|
Financial Position at Year-End (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(a)(b)
|
|
$
|
158.9
|
|
|
$
|
95.4
|
|
|
$
|
51.0
|
|
|
$
|
61.4
|
|
|
$
|
48.4
|
|
Current ratio(a)(b)
|
|
|
1.9
|
|
|
|
1.4
|
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
1.3
|
|
Total assets
|
|
|
834.0
|
|
|
|
1,169.6
|
|
|
|
1,050.9
|
|
|
|
1,119.5
|
|
|
|
1,132.4
|
|
Long-term debt, net of current portion
|
|
|
241.2
|
|
|
|
240.7
|
|
|
|
160.3
|
|
|
|
203.7
|
|
|
|
215.7
|
|
Shareholders equity
|
|
|
284.5
|
|
|
|
445.3
|
|
|
|
386.4
|
|
|
|
376.3
|
|
|
|
412.7
|
|
Debt-to-capitalization ratio(c)
|
|
|
49.5
|
%
|
|
|
39.3
|
%
|
|
|
36.8
|
%
|
|
|
42.0
|
%
|
|
|
36.2
|
%
|
Net debt-to-capitalization ratio(d)
|
|
|
46.3
|
%
|
|
|
38.3
|
%
|
|
|
35.1
|
%
|
|
|
32.9
|
%
|
|
|
34.7
|
%
|
Other (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders(a)
|
|
$
|
940.4
|
|
|
$
|
998.2
|
|
|
$
|
855.9
|
|
|
$
|
694.6
|
|
|
$
|
685.6
|
|
Backlog(a)
|
|
|
301.1
|
|
|
|
331.7
|
|
|
|
249.4
|
|
|
|
178.2
|
|
|
|
192.4
|
|
Net cash provided by operating activities
|
|
|
123.7
|
|
|
|
65.4
|
|
|
|
29.7
|
|
|
|
70.6
|
|
|
|
52.5
|
|
Net cash provided by (used for) investing activities
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
|
|
(19.3
|
)
|
|
|
(0.7
|
)
|
|
|
34.1
|
|
Net cash (used for) provided by financing activities
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
|
|
(83.0
|
)
|
|
|
7.1
|
|
|
|
(81.7
|
)
|
Capital expenditures(a)
|
|
|
28.5
|
|
|
|
20.1
|
|
|
|
12.2
|
|
|
|
8.1
|
|
|
|
9.5
|
|
Depreciation and amortization(a)
|
|
|
15.5
|
|
|
|
14.1
|
|
|
|
9.5
|
|
|
|
9.6
|
|
|
|
7.8
|
|
Employees(a)
|
|
|
3,317
|
|
|
|
3,495
|
|
|
|
3,192
|
|
|
|
3,002
|
|
|
|
2,819
|
|
|
|
|
(a) |
|
continuing operations only, prior year amounts have been
reclassified for discontinued operations as discussed in
Note 12 to the financial statements |
|
(b) |
|
working capital: current assets less current liabilities;
current ratio: current assets divided by current liabilities |
|
(c) |
|
total debt divided by the sum of total debt plus equity |
|
(d) |
|
net debt to capitalization ratio: debt less cash and cash
equivalents and short-term investments divided by equity plus
debt less cash and cash equivalents and short-term investments |
10
The 2008 and 2004 income before income taxes includes
restructuring costs of $2.7 million and $0.4 million,
respectively. The 2008 income before income taxes was impacted
by a $6.9 million loss incurred to settle a dispute and
write off assets associated with a large parking systems
contract and a $13.0 million loss associated with ongoing
operations as well as the Companys decision to terminate
funding of a joint venture in China (China Joint
Venture). The 2005 loss before income taxes was impacted
by a $6.7 million gain on the sale of two industrial
lighting product lines.
The selected financial data set forth above should be read in
conjunction with the Companys consolidated financial
statements, including the notes thereto, and Item 7 of this
Form 10-K.
The information concerning the Companys selected quarterly
data included in Note 18 of the financial statements
contained under Item 8 of this
Form 10-K
is incorporated herein by reference.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The Company designs and manufactures a suite of products and
integrated solutions for municipal, governmental, industrial and
commercial customers. Federal Signals products include
safety and security systems, vacuum loader vehicles, street
sweepers, truck mounted aerial platforms and waterblasters. Due
to technology, marketing, distribution and product application
synergies, the Companys business units are organized and
managed in three operating segments: Safety and Security
Systems, Fire Rescue and Environmental Solutions. The
information concerning the Companys manufacturing
businesses included in Item 1 of this
Form 10-K
and Note 15 of the financial statements contained under
Item 8 of this
Form 10-K
are incorporated herein by reference.
Results
of Operations
Operating results have been restated to exclude the following
operations discontinued during 2008: all businesses of the
former Tool Group, all
E-ONE
businesses, and all Financial Services activities and
businesses. Information relating to each of these discontinued
operations is presented in Note 12 of the financial
statements contained under Item 8 of this
Form 10-K.
Orders
and backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Analysis of orders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total orders ($ in millions):
|
|
$
|
940.4
|
|
|
$
|
998.2
|
|
|
$
|
855.9
|
|
Change in orders year over year
|
|
|
(5.8
|
)%
|
|
|
16.6
|
%
|
|
|
|
|
Change in U.S. municipal and government orders year over year
|
|
|
(12.2
|
)%
|
|
|
5.4
|
%
|
|
|
|
|
Change in U.S. industrial and commercial orders year over year
|
|
|
(8.2
|
)%
|
|
|
13.5
|
%
|
|
|
|
|
Change in
non-U.S.
orders year over year
|
|
|
0.3
|
%
|
|
|
28.6
|
%
|
|
|
|
|
U.S. municipal and government orders decreased 12% in 2008
primarily as a result of decreased orders of sweepers of
$22.3 million, sewer cleaners of $13.1 million and a
$12.3 million decline in police products offset by an
increase in automated license plate recognition
(ALPR) cameras of approximately $6.1 million.
U.S. industrial and commercial orders decreased 8% driven
by lower orders for sweepers and vacuum trucks of
$21.2 million and a reduction in parking system orders of
$6.1 million, offset by an increase in Bronto articulated
aerial devices of approximately $4.7 million.
Non-U.S. orders
remained relatively flat as compared to prior year with
increases in ALPR cameras of $15.1 million and European
sweeper orders and water blasters of $4.7 million, offset
by a decrease in Bronto articulated aerial devices of
approximately $16.6 million.
U.S. municipal and government orders increased 5% in 2007
primarily due to strength in police products, sweepers and the
addition of ALPR cameras. U.S. industrial and commercial
orders increased 14% on continued high demand for industrial
vacuum trucks and an increase in orders for hazardous area
lighting and industrial signal and communications equipment.
Non-U.S. orders
increased 29%, and included a 35% increase in sales of products
manufactured outside of the U.S. and increases in
U.S. exports in Safety and Security Systems and
Environmental Solutions. Favorable currency movements estimated
at $33 million also improved 2007 compared to 2006.
11
Consolidated
results of operations
The following table summarizes the Companys results of
operations and selected operating metrics for each of the three
years in the period ended December 31, 2008 ($ in millions,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
958.8
|
|
|
$
|
934.3
|
|
|
$
|
792.7
|
|
Cost of sales
|
|
|
(706.9
|
)
|
|
|
(685.9
|
)
|
|
|
(576.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
251.9
|
|
|
|
248.4
|
|
|
|
216.2
|
|
Operating expenses
|
|
|
(193.7
|
)
|
|
|
(173.2
|
)
|
|
|
(157.1
|
)
|
Restructuring charges
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
55.5
|
|
|
|
75.2
|
|
|
|
59.1
|
|
Interest expense
|
|
|
(15.3
|
)
|
|
|
(18.5
|
)
|
|
|
(17.0
|
)
|
Loss on investment in joint venture
|
|
|
(13.0
|
)
|
|
|
(3.3
|
)
|
|
|
(1.9
|
)
|
Other (expense) income
|
|
|
(0.9
|
)
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
Income tax benefit (expense)
|
|
|
5.0
|
|
|
|
(13.9
|
)
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
31.3
|
|
|
|
39.7
|
|
|
|
31.2
|
|
(Loss) gain from discontinued operations and disposal, net of tax
|
|
|
(126.9
|
)
|
|
|
15.2
|
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(95.6
|
)
|
|
$
|
54.9
|
|
|
$
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
5.8
|
%
|
|
|
8.0
|
%
|
|
|
7.5
|
%
|
Earnings per share continuing operations
|
|
$
|
0.66
|
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
Year
Ended December 31, 2008 vs. December 31,
2007
Net sales increased 3% over 2007 or 1% after removing the
favorable effects of currency translation from a weaker
U.S. dollar. Sales volume increases at Fire Rescue were
largely offset by reductions at Environmental Solutions; while
Safety and Security Systems were relatively flat (see segment
discussions below). Gross profit margins fell slightly in 2008
to 26.3% from 26.6% due largely to the absence of a favorable
$1.8 million excise tax settlement which occurred in 2007.
Operating income decreased by 26% in 2008 as the gross profit
increase of $3.5 million was more than offset by an
increase of $20.5 million of operating expenses due to
$9.9 million of higher legal costs associated with the
Companys ongoing firefighter hearing loss litigation,
$6.2 million of increased charges to settle a dispute and
write off assets associated with a contract to install revenue
control equipment at the Dallas Fort Worth (DFW) airport,
and $2.7 million of restructuring costs largely due to
severance associated with streamlining the management structure.
Interest expense decreased 17% from 2007, primarily due to lower
average borrowings in 2008 from a reduction in net debt of
$30.7 million. The Company paid down debt using net
proceeds of $3.4 million from the working capital
reductions and sale of
E-ONE,
$59.9 million from the sale of its Tool Group businesses,
and $35.8 million from the sale-leaseback of its Elgin and
University Park, Illinois plants. For further discussion of the
discontinued operations, see Note 12 of the financial
statements contained under Item 8 of this
Form 10-K.
Losses on the Companys investment in a joint venture in
China totaled $13.0 million in 2008. The Companys
share of operating losses was $2.6 million in 2008 versus
$3.3 million in 2007. A charge of $10.4 million was
taken in 2008 to reflect the Companys contingent
obligations to guaranty the debt of the joint venture and to
guaranty the investment of one of its joint venture partners. A
review of the market and forecasts of the joint ventures
cash flows indicated its bank debt was unlikely to be repaid and
it was unlikely to provide a return to the joint venture
partners. In February 2009, the Company decided to terminate
funding to this venture. Significant uncertainties exist,
however, including a requirement to obtain unanimous partner
approval as well as Chinese government approval to liquidate the
entity. The Company anticipates closure costs in 2009 in the
range of $1.0 to $2.0 million.
12
Other expenses of $0.9 million include realized losses from
foreign currency transactions and on derivatives contracts.
The 2008 effective tax rate on income from continuing operations
decreased to (19.0)% from 25.9% in the prior year. The 2008 rate
benefited from a capital loss utilization tax strategy on a
sale/leaseback of real estate properties, the China Joint
Venture shutdown tax benefits, and a higher mix of profits in
lower taxed countries.
Income from continuing operations decreased 21% from 2007
primarily as a result of the aforementioned charges in operating
expenses, loss on joint venture and offsetting tax benefits.
Net loss was $95.6 million in 2008 versus net income of
$54.9 million in 2007. Losses from discontinued operations
totaled $126.9 million in 2008 relating primarily to the
impairment of assets and sale of the Companys Die and Mold
Operations and
E-ONE. The
Company also discontinued its financial services activities
during 2008 which generated income of $0.3 million. A net
gain of $15.2 million on discontinued operations in 2007
resulted primarily from the sale of the Cutting Tool Operations
in that year. For further discussion of the discontinued
operations, see Note 12 of the Consolidated Financial
Statements contained under Item 8 of Part II of this
Form 10-K.
Year
Ended December 31, 2007 vs. December 31,
2006
Net sales increased 18% over 2006 or 15% without the favorable
effects of currency translation from a weaker U.S. dollar.
All groups experienced sizable sales volume increases, where
Safety and Security Systems was up $62.7 million,
Environmental Solutions was up $51.7 million and Fire
Rescue was up $27.2 million. Gross profit margins fell to
26.6% in 2007 from 27.2% in 2006 due to costs associated with
the launch and production of the new Elgin Pelican sweeper in
the U.S. offset in part by a favorable $1.8 million
excise tax settlement received in 2007.
Operating income rose 27% over 2006 primarily as a result of the
leverage from higher sales volumes and a relative reduction in
operating expenses, which as a percent of sales were 18.5% in
2007 down from 19.8% in 2006. Selling expenses were relatively
lower and product development costs were relatively higher at
Safety and Security Systems and at Environmental Solutions due
largely to the mix of product shipments and a focus on new
products.
Interest expense increased 9%, or $1.5 million from 2006,
primarily due to an increase in borrowings to fund the PIPS
Technologies acquisition in August 2007.
Loss on investment in joint venture rose 74% to
$3.3 million in 2007 as additional costs were incurred to
build the infrastructure of the operating entity.
The 2007 effective tax rate on income from continuing operations
increased to 25.9% from 22.1% in the prior year. The 2007 rate
benefited from the Companys foreign tax planning
strategies including dividend repatriation, foreign entity
financing and a legal entity restructuring in Canada. The 2006
rate benefited from tax reserve reductions and a higher mix of
profits in lower taxed foreign jurisdictions.
Income from continuing operations increased 27% in 2007
primarily as a result of the higher sales volumes and lower
relative operating expenses offset by the higher effective tax
rate.
Net income more than doubled to $54.9 million for the year
ended December 31, 2007 versus $22.7 million in 2006.
For 2007, after completion of the sale of the Cutting Tool
Operations in the first quarter, substantial completion of the
wind-down of the Refuse business, and the restated operating
results for the operations discontinued in 2008, the Company
realized a net after-tax gain on the sale of previously
discontinued operations of $15.2 million, compared to a
loss of $8.5 million in the prior year. For further
discussion of the discontinued operations, see Note 12 of
the financial statements contained under Item 8 of this
Form 10-K.
13
Safety
and Security Systems Operations
The following table presents the Safety and Security Systems
Groups results of operations for each of the three years
in the period ended December 31, 2008 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Total orders
|
|
$
|
367.1
|
|
|
$
|
367.5
|
|
|
$
|
305.5
|
|
U.S. orders
|
|
|
202.5
|
|
|
|
216.3
|
|
|
|
184.9
|
|
Non-U.S.
orders
|
|
|
164.6
|
|
|
|
151.2
|
|
|
|
120.6
|
|
Net sales
|
|
|
371.8
|
|
|
|
367.2
|
|
|
|
304.5
|
|
Operating income
|
|
|
40.3
|
|
|
|
49.6
|
|
|
|
41.2
|
|
Operating margin
|
|
|
10.8
|
%
|
|
|
13.5
|
%
|
|
|
13.5
|
%
|
Orders remained relatively flat in 2008 as compared to 2007.
U.S. orders decreased 6% due to weak municipal spending and
a relative softening in the industrial economy compared to 2007.
For 2008, orders in the U.S. fell $12.3 million for
police products, $6.1 million for parking systems, and
$2.8 million for hazardous area lighting products. Partly
offsetting these declines were an increase in orders of
$2.1 million for outdoor warnings systems and
$6.1 million for automated license plate recognition
(ALPR) cameras made by PIPS Technologies, which was
acquired in the third quarter of 2007.
Non-U.S. orders
in 2008 increased 9% over the prior year or 6% when excluding
the favorable effects of currency translation due to strength in
outdoor warning systems and the addition of PIPS Technologies
acquired in 2007.
Net sales increased 1% in 2008. An increase in shipments of ALPR
cameras during 2008 of $19.2 million and industrial
communications systems of $2.4 million was offset by a
$17.7 million decrease in global vehicular lighting and
siren sales. Operating income in 2008 declined 19% and operating
margins fell, primarily due to $6.2 million of increased
charges to settle a dispute and write off assets associated with
the DFW parking system contract, and $1.8 million of
employee severance costs associated with restructuring
initiatives, and $0.8 million associated with other cost
reduction initiatives.
Orders improved 20% in 2007 over 2006 with strength across all
market segments, except for outdoor warning systems which
declined by $1.0 million. U.S. orders rose 17% due
primarily to an increase of $9.1 million for police
products, $6.3 million for hazardous area lighting products
and $5.7 million of parking systems.
Non-U.S. orders
increased 25% in 2007 or 19% without the favorable effects of
currency translation. The acquisition of PIPS Technologies in
the third quarter of 2007 contributed $6.4 million. During
2007, the Company introduced a next generation and more reliable
LED light bar technology which drove a $30.7 million
increase in global orders for vehicular warning systems.
Net sales increased 21% and improved across most market segments
with a $34.9 million increase in global vehicular warning
systems and a $19.2 million increase in industrial
communication and hazardous area products. The PIPS Technologies
acquisition contributed $9.6 million for 2007. Operating
income increased 20% in 2007 over 2006 and the operating margin
remained at 13.5%. The leverage of higher sales volume was
offset partly by increased costs associated with expanding the
product portfolio and market reach.
Fire
Rescue Operations
The following table presents the Fire Rescue Groups
results of operations for each of the three years in the period
ended December 31, 2008 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Total orders
|
|
$
|
162.3
|
|
|
$
|
174.1
|
|
|
$
|
115.0
|
|
U.S. orders
|
|
|
6.5
|
|
|
|
1.7
|
|
|
|
2.7
|
|
Non-U.S.
orders
|
|
|
155.8
|
|
|
|
172.4
|
|
|
|
112.3
|
|
Net sales
|
|
|
145.5
|
|
|
|
117.9
|
|
|
|
90.7
|
|
Operating income
|
|
|
10.4
|
|
|
|
7.9
|
|
|
|
5.6
|
|
Operating margin
|
|
|
7.1
|
%
|
|
|
6.7
|
%
|
|
|
6.2
|
%
|
14
Orders in 2008 decreased 7% from the prior year or 15% when
excluding the favorable effects of currency translation.
Brontos entire order decline existed within its industrial
markets, primarily with weakness in Europe. Orders from the
groups former
E-ONE
business drove the increase in U.S. orders. Brontos
fire rescue markets were flat overall during the year.
Net sales in 2008 increased 23% from the prior year or 19% when
excluding the favorable effects of currency translation.
Brontos unusually large backlog, which exceeded
12 months of shipments at the end of 2007, allowed for
strong shipments in 2008 despite a reduction in orders during
the year. Bronto completed a plant expansion in 2008, and with a
backlog that remains at 12 months, the Company expects
Brontos shipments will be strong next year despite a weak
global economy.
Operating income rose 32% in 2008 and operating margins improved
as a result of the increased sales volumes. Higher product costs
for steel and other components and inefficiencies caused by the
plant expansion offset some of the sales volume impact.
Orders in 2007 improved 51% over 2006 or 38% when excluding the
favorable effects of currency translation. Brontos demand
was strong across both of its primary market segments
(industrial and fire rescue) and particularly in Europe and
Asia. Net sales rose 30% in 2007 or 21% when excluding the
favorable effects of currency translation. Shipments were higher
due to the strong order intake, limited only by the
companys production capacity. Operating income rose 41% in
2007 and operating margins improved as a result of the leverage
from higher sales volumes.
Environmental
Solutions Operations
The following table presents the Environmental Solutions
Groups results of operations for each of the three years
in the period ended December 31, 2008 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Total orders
|
|
$
|
411.0
|
|
|
$
|
456.6
|
|
|
$
|
435.4
|
|
U.S. orders
|
|
|
297.8
|
|
|
|
347.6
|
|
|
|
331.8
|
|
Non-U.S.
orders
|
|
|
113.2
|
|
|
|
109.0
|
|
|
|
103.6
|
|
Net sales
|
|
|
441.5
|
|
|
|
449.2
|
|
|
|
397.5
|
|
Operating income
|
|
|
35.5
|
|
|
|
38.8
|
|
|
|
35.3
|
|
Operating margin
|
|
|
8.0
|
%
|
|
|
8.6
|
%
|
|
|
8.9
|
%
|
Orders of $411.0 million in 2008 were 10% below the prior
year. U.S. orders decreased 14% in 2008 from the prior year
as weak municipal and industrial markets drove a
$28.9 million reduction in sweepers and a
$28.1 million reduction in sewer cleaning and industrial
vacuum trucks offset by an increase of $5.8 million in
waterblasters.
Non-U.S. orders
increased 4% entirely by favorable foreign currency translation
from a weaker U.S. dollar. Net sales in 2008 compared to
2007 decreased 2% as a decline in U.S sweeper shipments of
$23.6 million more than offset a $13.6 million
increase in global shipments of sewer cleaning and industrial
vacuum trucks.
Operating income decreased 9% in 2008 due to lower sales volumes
and the absence of a favorable $1.8 million excise tax
settlement which occurred in 2007.
In 2007, orders increased 5% over the 2006 year.
U.S. orders increased 5% due to solid demand for industrial
vacuum trucks and the impact of higher priced chassis associated
with new 2007 EPA standards.
Non-U.S. orders
increased 5% driven by stronger U.S. exports of sewer
cleaners and industrial vacuum trucks primarily to the Middle
East. Net sales compared to 2006 grew 13% on higher unit volumes
of primarily vacuum trucks and overall higher pricing due in
part to higher priced chassis.
Operating income in 2007 rose 10% over 2006, however, the
operating margin in 2007 declined as the favorable benefits of
higher pricing and sales volume were more than offset by
increased chassis costs, temporarily high material costs, new
product development, ERP implementation, product launches and
initiatives to increase manufacturing efficiency.
15
Corporate
Expense
Corporate expenses totaled $30.7 million in 2008,
$21.1 million in 2007 and $23.0 million in 2006. The
45% increase in 2008 expense is primarily due to
$9.9 million of higher legal costs associated with the
Companys ongoing firefighter hearing loss litigation and
$1.5 million of costs associated with the hiring of a new
chief executive officer and chief financial officer, reduced by
lower bonus and stock-based compensation costs of
$1.8 million.
The 8% reduction in 2007 expense was benefited by the receipt of
$3.7 million in reimbursements from one of the
Companys insurers for certain out of pocket expenses
related to the Companys ongoing firefighter hearing loss
litigation. The reimbursement essentially offset the legal
expenses in 2007 associated with this litigation.
The hearing loss litigation has historically been managed by the
Companys legal staff resident at the corporate office and
not by management at any reporting segment. In accordance with
SFAS 131 which provides that segment reporting should
follow the management of the item and that some expenses can be
corporate expenses, these legal expenses (which are extremely
unusual and not part of the normal operating activities of any
of our operating segments), are reported and managed as
corporate expenses. Only the Company, and no current or divested
subsidiaries is a named party to these lawsuits.
Legal
Matters
The Company has been sued by over 2,500 firefighters in numerous
separate cases alleging that exposure to the Companys
sirens impaired their hearing. The Company contests the
allegations. Over 100 cases have been dismissed in Cook
County including 27 by way of verdict. The Company continues to
aggressively defend the matter. For further details regarding
this and other legal matters, refer to Note 14 in the
financial statements included in Item 8 of this
Form 10-K.
Financial
Condition, Liquidity and Capital Resources
During each of the three years in the period ended
December 31, 2008, the Company used its cash flows from
operations to pay cash dividends to shareholders, to fund
growth, and to make capital investments that both sustain and
reduce the cost of its operations. Beyond these uses, remaining
cash was used to fund acquisitions, pay down debt, to repurchase
shares of common stock and make voluntary pension contributions.
The Companys cash and cash equivalents totaled
$23.4 million, $12.5 million and $15.8 million as
of December 31, 2008, 2007 and 2006, respectively. The
following table summarizes the Companys cash flows for
each of the three years in the period ended December 31,
2008 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating cash flow
|
|
$
|
123.7
|
|
|
$
|
65.4
|
|
|
$
|
29.7
|
|
Proceeds from sale of properties, plant and equipment
|
|
|
38.0
|
|
|
|
0.6
|
|
|
|
0.2
|
|
Capital expenditures
|
|
|
(28.5
|
)
|
|
|
(20.1
|
)
|
|
|
(12.2
|
)
|
Payments for acquisitions, net of cash acquired
|
|
|
|
|
|
|
(147.5
|
)
|
|
|
|
|
Gross proceeds from sale of discontinued businesses
|
|
|
65.9
|
|
|
|
65.4
|
|
|
|
|
|
Borrowing activity, net
|
|
|
(20.1
|
)
|
|
|
59.6
|
|
|
|
(50.7
|
)
|
Dividends
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
Purchases of treasury stock
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(12.1
|
)
|
Payments for discontinued financing activities
|
|
|
(129.3
|
)
|
|
|
(11.7
|
)
|
|
|
(9.8
|
)
|
All other, net
|
|
|
(21.3
|
)
|
|
|
(3.5
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
$
|
10.9
|
|
|
$
|
(3.3
|
)
|
|
$
|
(70.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow rose by $58.3 million in 2008 compared
to 2007. The increase in 2008 was driven by a
$103.1 million increase in cash from discontinued operating
activities offset by a reduction of $44.8 million in cash
provided by continuing operating activities. In 2008, the
Company discontinued its Die and Mold Operations,
E-ONE
business and Financial Services activities which generated cash
of $126.2 million during the year. During
16
the year, the Company entered into a program agreement with Banc
of America Public Capital Corp. to sell certain of its municipal
leases by December 31, 2008. Approximately 92% of the
Companys municipal leases were sold under the program for
net cash proceeds of approximately $94.0 million. The
reduction in cash provided by continuing operations of
$44.8 million was caused primarily by an increase in
accounts receivable from the timing of shipments in 2008, a
decrease in accounts payable and higher pension contributions in
2008.
Proceeds from the sale of properties, plant and equipment in
2008 are primarily the result of net cash proceeds of
$35.8 million received from a sale-leaseback of the
Companys Elgin and University Park, Illinois plants.
Capital expenditures rose $8.4 million in 2008 from 2007
due primarily to the expansion of the Companys plants in
Pori, Finland and in Streator, Illinois. Capital expenditures
increased in 2007 compared to 2006 as the Companys ERP
system design and implementation gained momentum during the year.
In 2007, the Company acquired three businesses, Codespear LLC in
January for $17.4 million in cash, Riverchase Technologies
in July for $6.7 million in cash, and PIPS Technologies in
August for $126.3 million in cash. See Note 10 of the
notes to the consolidated financial statements for additional
information on these acquisitions. The Company funded the
acquisitions through cash provided by operations, additional
bank borrowings, and from proceeds received from the sale of the
Cutting Tool Operations, included in discontinued operations in
2006, and sold in January, 2007 for $65.4 million in cash.
See Note 12 of the notes to the consolidated financial
statements for additional information on the sale of the Cutting
Tool Operations.
In 2008, the Company divested its Die and Mold Operations and
E-ONE
business for net cash proceeds of $59.9 million and a
payment of $0.6 million, respectively. Gross proceeds from
the sale of
E-ONE were
$3.4 million, of which $0.5 million had been received
at December 31, 2008.
The Company paid down a total of $151.7 million of debt
during 2008, largely upon receipt of cash from the
aforementioned sale of its municipal leasing portfolio which was
included in discontinued operations and the aforementioned sale
leaseback transactions. In 2007, the Company had an increase in
net borrowings of $59.6 million due to the acquisition of
PIPS Technologies in the second half of the year. In 2006, net
borrowings were reduced by $50.7 million mainly as a result
of excess cash that was used to pay down debt.
Payments for discontinued financing activities of
$129.3 million in 2008 reflect the repayment of financial
service borrowings as a result of the Companys decision to
exit the municipal lease financing business. Other year over
year activity reflects the change in borrowings associated with
the divested Die and Mold Tooling and
E-ONE
businesses.
In April, 2007, the Company amended its Revolving Credit
Agreement. This Second Amended and Restated Credit Agreement
(Credit Agreement) provides for borrowings of
$250.0 million and matures April, 2012. It also allows the
Company to borrow up to $35 million in an alternative
currency under the swing line provision. As of December 31,
2007 22.5 million, or $32.6 million, was drawn
as alternative currency and $66.0 million was drawn on the
Credit Agreement for a total of $98.6 million drawn under
the Credit Agreement. The Company was in compliance with all
debt covenants throughout 2007.
In December, 2007, the Company amended the Loan Agreement
between
E-ONE and
Banc of America Leasing & Capital, LLC to allow
borrowings against the leases of
E-One Inc.,
E-One New
York, Inc., Elgin Sweeper Company and Vactor Manufacturing, Inc.
The outstanding balance on this agreement was $96.6 million
as of December 31, 2007 and was paid off completely by
August 2008.
In March 2008, the Company requested and was granted an
amendment (the Second Credit Amendment) to the
Credit Agreement. Affected items in the Second Credit Amendment
included the definitions of Consolidated Net Worth and EBIT,
reducing the Total Indebtedness to Capital ratio maximum to .50,
reducing the minimum Interest Coverage Ratio requirement from
2:1 to 2.75:1 for the four quarters ending in 2008, and reducing
the required minimum percentage of consolidated assets directly
owned by the Credit Agreements borrower and guarantors to
50%. The amendment also allowed for the unencumbered sale of the
E-ONE
business. At December 31, 2008, a total of
$97.0 million was drawn against the Credit Agreement. The
Company was in compliance with all debt covenants throughout
2008.
17
At December 31, 2006, $21.8 million was drawn against
the Companys $125 million Amended Credit Agreement
revolving credit line. This Amended Credit Agreement was
increased from $75 million to $125 million during
2006. The Company borrowed $23.6 million in September, 2006
through the Banc of America Loan Agreement, the balance on this
facility as of December 31, 2006 was $90.7 million.
Also in 2006, a $65 million private placement note matured
and was repaid using a combination of cash flow from operations
and borrowings under the Amended Credit Agreement revolving
credit line.
Cash dividends paid to shareholders in 2008, 2007 and 2006 were
$11.5 million. The Company declared dividends of $0.24 per
share in 2008, 2007 and 2006.
During 2006 and 2008, the Company completed repurchases totaling
$12.1 million and $6.0 million, respectively, of stock
under share repurchase programs approved by the Board of
Directors. Treasury stock purchases reflect the Companys
policy to purchase shares to offset the dilutive effects of
stock-based compensation.
Total debt net of cash and short-term investments included in
continuing operations was $245.5 million representing 46%
of total capitalization at December 31, 2008 versus
$276.2 million or 38% of total capitalization at
December 31, 2007. The increase in the percentage of debt
to total capitalization in 2008, despite the reduction in debt,
was due to a reduction in equity of $160.8 million caused
primarily by an increase in the net after tax losses associated
with the divestitures of the Die and Mold Operations and
E-ONE. In
2008, the Companys aggregate borrowing capacity was
maintained.
The Company anticipates that capital expenditures for 2009 will
approximate $20 million and that its financial resources
and major sources of liquidity, including cash flow from
operations and borrowing capacity, will be adequate to meet its
operating and capital needs in addition to its financial
commitments.
Contractual
Obligations and Commercial Commitments
The following table presents a summary of the Companys
contractual obligations and payments due by period as of
December 31, 2008 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Short-term obligations
|
|
$
|
12.6
|
|
|
$
|
12.6
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt*
|
|
|
270.4
|
|
|
|
25.1
|
|
|
|
70.3
|
|
|
|
175.0
|
|
|
|
|
|
Operating lease obligations
|
|
|
74.9
|
|
|
|
9.9
|
|
|
|
14.0
|
|
|
|
10.2
|
|
|
|
40.8
|
|
Fair value of interest rate swaps
|
|
|
2.1
|
|
|
|
0.4
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
Interest payments on long term debt
|
|
|
24.0
|
|
|
|
8.5
|
|
|
|
11.5
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
384.0
|
|
|
$
|
56.5
|
|
|
$
|
97.5
|
|
|
$
|
189.2
|
|
|
$
|
40.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Long term debt includes financial service borrowings which is
reported in discontinued operations. |
The Company is party to various interest rate swap agreements in
conjunction with the management of borrowing costs. As of
December 31, 2008, the fair value of the Companys net
position would result in cash payments of $0.9 million.
Future changes in the U.S. interest rate environment would
correspondingly affect the fair value and ultimate settlement of
the contracts.
The Company also enters into foreign currency forward contracts
to protect against the variability in exchange rates on cash
flows and intercompany transactions with its foreign
subsidiaries. As of December 31, 2008, there is
$0.7 million unrealized losses on the Companys
foreign exchange contracts. Volatility in the future exchange
rates between the U.S. dollar and Euro and Canadian dollar
will impact the final settlement of any of these contracts.
18
The following table presents a summary of the Companys
commercial commitments and the notional amount by expiration
period ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount by Expiration Period
|
|
|
|
|
|
|
Less than
|
|
|
2-3
|
|
|
4-5
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Financial standby letters of credit
|
|
$
|
31.6
|
|
|
$
|
31.4
|
|
|
$
|
|
|
|
$
|
0.2
|
|
Performance standby letters of credit
|
|
|
2.4
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Guaranteed residual value obligations
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
38.4
|
|
|
$
|
38.2
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial standby letters of credit largely relate to casualty
insurance policies for the Companys workers
compensation, automobile, general liability and product
liability policies. Performance standby letters of credit
represent guarantees of performance by foreign subsidiaries that
engage in cross-border transactions with foreign customers.
Purchase obligations relate to commercial chassis.
In limited circumstances, the Company guarantees the residual
value on vehicles in order to facilitate a sale. The Company
believes its risk of loss is low; no losses have been incurred
to date. The inability of the Company to enter into these types
of arrangements in the future due to unforeseen circumstances is
not expected to have a material impact on its financial
position, results of operations or cash flows.
As of December 31, 2008, the Company has a liability of
approximately $5.9 million for unrecognized tax benefits
(refer to Note 5). Due to the uncertainties related these
tax matters, the Company cannot make a reasonably reliable
estimate of the period of cash settlement for this liability.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. The Company considers the following
policies to be the most critical in understanding the judgments
that are involved in the preparation of the Companys
consolidated financial statements and the uncertainties that
could impact the Companys financial condition, results of
operations and cash flows.
Allowances
for Doubtful Accounts
The Company performs ongoing credit evaluations of its
customers. The Companys policy is to establish, on a
quarterly basis, allowances for doubtful accounts based on
factors such as historical loss trends, credit quality of the
present portfolio, collateral value and general economic
conditions. If the historical loss trend increased or decreased
10% in 2008, the Companys operating income would have
decreased or increased by $0.1 million, respectively.
Though management considers the valuation of the allowances
proper and adequate, changes in the economy
and/or
deterioration of the financial condition of the Companys
customers could affect the reserve balances required.
Inventory
Reserve
The Company performs ongoing evaluations to ensure that reserves
for excess and obsolete inventory are properly identified and
recorded. The reserve balance includes both specific and general
reserves. Specific reserves at 100% are established based on the
identification of separately identifiable obsolete products and
materials. General reserves for materials are established based
upon formulas which are established by reference to, among other
things, the level of current inventory relative to recent usage,
estimated scrap value and the level of estimated future usage.
Historically, this reserve policy has given a close
approximation of the Companys experience with
19
excess and obsolete inventory. The Company does not foresee a
need to revise its reserve policy in the future. However, from
time to time unusual buying patterns or shifts in demand may
cause large movements in the reserve balance.
Warranty
Reserve
The Companys products generally carry express warranties
that provide repairs at no cost to the customer. The length of
the warranty term depends on the product sold, but generally
extends from six months to five years based on the terms that
are generally accepted in the Companys marketplaces.
Certain components necessary to manufacture the Companys
vehicles (including chassis, engines and transmissions) are
covered under an original manufacturers warranty. Such
manufacturers warranties are extended directly to end
customers.
The Company accrues its estimated exposure to warranty claims at
the time of sale based upon historical warranty claim costs as a
percentage of sales. Management reviews these estimates on a
quarterly basis and adjusts the warranty provisions as actual
experience differs from historical estimates. Infrequently, a
material warranty issue can arise which is outside the norm of
the Companys historical experience; costs related to such
issues, if any, are provided for when they become probable and
estimable.
The Companys warranty costs as a percentage of net sales
totaled 1.0% in 2008, 0.9% in 2007 and 0.8% in 2006. The
increase in the rate in 2008 is primarily due to increased costs
in the Fire Rescue Group. Management believes the reserve
recorded at December 31, 2008 is appropriate. A 10%
increase or decrease in the estimated warranty costs in 2008
would have decreased or increased operating income by
$0.9 million, respectively.
Workers
Compensation and Product Liability Reserves
Due to the nature of the products manufactured, the Company is
subject to product liability claims in the ordinary course of
business. The Company is partially self-funded for workers
compensation and product liability claims with various retention
and excess coverage thresholds. After the claim is filed, an
initial liability is estimated, if any is expected, to resolve
the claim. This liability is periodically updated as more claim
facts become known. The establishment and update of liabilities
for unpaid claims, including claims incurred but not reported,
is based on the assessment by the Companys claim
administrator of each claim, an independent actuarial valuation
of the nature and severity of total claims and managements
estimate. The Company utilizes a third-party claims
administrator to pay claims, track and evaluate actual claims
experience and ensure consistency in the data used in the
actuarial valuation. Management believes that the reserve
established at December 31, 2008 appropriately reflects the
Companys risk exposure. The Company has not established a
reserve for potential losses resulting from hearing loss
litigation (see Note 14 to the Companys Consolidated
Financial Statements included in Item 8 of this
Form 10-K);
if the Company is not successful in its defense after exhausting
all appellate options, it will record a charge for such claims,
to the extent they exceed insurance recoveries, at the
appropriate time.
Goodwill
Impairment
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, the Company ceased amortization of
goodwill and indefinite-lived intangible assets effective
January 1, 2002. SFAS No. 142 also requires the
Company to test these assets annually for impairment; the
Company performs this test in the fourth quarter unless
impairment indicators arise earlier. The Company continues to
amortize definite-lived intangible assets over their useful life.
A review for impairment requires judgment in estimated cash
flows based upon estimates of future sales, operating income,
working capital improvements and capital expenditures.
Management utilizes a discounted cash flow approach to determine
the fair value of the Companys reporting units. If the sum
of the expected discounted cash flows of the reporting unit is
less than its carrying value, an impairment loss is required
against the units goodwill.
The annual testing conducted in 2008, 2007 and 2006 did not
result in impairment.
20
Although management believes that the assumptions and estimates
used were reasonable, a sensitivity analysis for each reporting
unit is performed along with the impairment test. The analysis
indicated that a 10% reduction to earnings before interest and
taxes to all future years would not have resulted in a goodwill
impairment in any group.
Postretirement
Benefits
The Company sponsors domestic and foreign defined benefit
pension and other postretirement plans. Major assumptions used
in the accounting for these employee benefit plans include the
discount rate, expected return on plan assets and rate of
increase in employee compensation levels. A change in any of
these assumptions would have an effect on net periodic pension
and postretirement benefit costs.
The following table summarizes the impact that a change in these
assumptions would have on the Companys operating income:
|
|
|
|
|
|
|
|
|
|
|
Assumption Change:
|
|
|
|
25 Basis
|
|
|
25 Basis
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
Discount rate
|
|
|
0.5
|
|
|
|
(0.5
|
)
|
Return on assets
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
Employee compensation levels
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
The weighted-average discount rate used to measure pension
liabilities and costs is set by reference to published
high-quality bond indices. However, these indices give only an
indication of the appropriate discount rate because the cash
flows of the bonds comprising the indices do not match the
projected benefit payment stream of the plan precisely. For this
reason, we also consider the individual characteristics of the
plan, such as projected cash flow patterns and payment
durations, when setting the discount rate. The weighted-average
discount rate used to measure U.S. pension liabilities
increased from 6.0% in 2007 to 6.8% in 2008. See Note 6 to
the Consolidated Financial Statements for further discussion.
Stock-Based
Compensation Expense
The Company accounts for stock-based compensation in accordance
with SFAS No. 123(R). SFAS No. 123(R)
requires all share-based payments to employees, including grants
of employee stock options and restricted stock, to be recognized
in the financial statements based on their respective grant date
fair values. We use the Black-Scholes option pricing model to
estimate the fair value of the stock option awards. The
Black-Scholes model requires the use of highly subjective and
complex assumptions, including the Companys stock price,
expected volatility, expected term, risk-free interest rate and
expected dividend yield. For expected volatility, we base the
assumption on the historical volatility of the Companys
common stock. The expected term of the awards is based on
historical data regarding employees option exercise
behaviors. The risk-free interest rate assumption is based on
observed interest rates appropriate for the terms of the awards.
The dividend yield assumption is based on the Companys
history and expectation of dividend payouts. In addition to the
requirement for fair value estimates, SFAS No. 123(R)
also requires the recording of expense that is net of an
anticipated forfeiture rate. Therefore, only expenses associated
with awards that are ultimately expected to vest are included in
our financial statements. Our forfeiture rate is determined
based on our historical option cancellation experience.
We evaluate the Black-Scholes assumptions that we use to value
our awards on a quarterly basis. With respect to the forfeiture
rate, we revise the rate if actual forfeitures differ from our
estimates. If factors change and we employ different
assumptions, stock-based compensation expense related to future
stock-based payments may differ significantly from estimates
recorded in prior periods.
Financial
Market Risk Management
The Company is subject to market risk associated with changes in
interest rates and foreign exchange rates. To mitigate this
risk, the Company utilizes interest rate swaps and foreign
currency options and forward contracts. The Company does not
hold or issue derivative financial instruments for trading or
speculative purposes and is not party to leveraged derivatives
contracts.
21
Interest
Rate Risk
The Company manages its exposure to interest rate movements by
targeting a proportionate relationship between fixed-rate debt
to total debt generally within established percentages of
between 40% and 60%. The Company uses funded fixed-rate
borrowings as well as interest rate swap agreements to balance
its overall fixed/floating interest rate mix.
The following table presents the principal cash flows and
weighted average interest rates by year of maturity for the
Companys total debt obligations held at December 31,
2008 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Fair
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Fixed rate
|
|
$
|
25.1
|
|
|
$
|
25.1
|
|
|
$
|
25.2
|
|
|
$
|
68.0
|
|
|
$
|
|
|
|
$
|
143.4
|
|
|
$
|
146.7
|
|
Average interest rate
|
|
|
5.7
|
%
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
|
|
5.2
|
%
|
|
|
|
|
|
|
5.5
|
%
|
|
|
|
|
Variable rate
|
|
$
|
|
|
|
$
|
20.0
|
|
|
$
|
|
|
|
$
|
97.0
|
|
|
$
|
10.0
|
|
|
$
|
127.0
|
|
|
$
|
127.0
|
|
Average interest rate
|
|
|
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
4.0
|
%
|
|
|
4.9
|
%
|
|
|
4.1
|
%
|
|
|
|
|
The following table presents notional amounts and weighted
average interest rates by expected (contractual) maturity date
for the Companys interest rate swap contracts held at
December 31, 2008 ($ in millions). Notional amounts are
used to calculate the contractual payments to be exchanged under
the contract. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Fair
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Pay fixed, receive variable
|
|
$
|
15.0
|
|
|
$
|
35.0
|
|
|
$
|
10.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
60.0
|
|
|
$
|
(2.7
|
)
|
Average pay rate
|
|
|
6.8
|
%
|
|
|
5.8
|
%
|
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed, pay variable
|
|
$
|
10.0
|
|
|
$
|
10.0
|
|
|
$
|
10.0
|
|
|
$
|
20.0
|
|
|
$
|
|
|
|
$
|
50.0
|
|
|
$
|
1.7
|
|
Average pay rate
|
|
|
5.3
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
6.8
|
%
|
|
|
6.8
|
%
|
|
|
6.8
|
%
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 7 to the consolidated financial statements in this
Form 10-K
for a description of these agreements. A 100 basis point
increase or decrease in variable interest rates in 2008 would
have increased or decreased interest expense by
$1.3 million, respectively.
Foreign
Exchange Rate Risk
Although the majority of our sales, expenses and cash flows are
transaction in U.S. dollars, we have exposure to changes in
foreign currency exchange rates, primarily the Euro and British
Pound. If average annual foreign exchange rates collectively
weakened against the U.S. dollar by 10%, our pre-tax
earnings in 2008 would have decreased by $3.0 million from
foreign currency translation.
The Company has foreign currency exposures related to buying and
selling in currencies other than the local currency in which it
operates. The Company utilizes foreign currency options and
forward contracts to manage these risks.
22
The following table summarizes the Companys foreign
currency derivative instruments as of December 31, 2008.
All are expected to settle in 2009 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
|
|
|
|
Settlement Date
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Notional
|
|
|
Contract
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Value
|
|
|
Forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Euros, sell U.S. dollars
|
|
$
|
11.6
|
|
|
|
1.5
|
|
|
$
|
(0.5
|
)
|
Buy U.S dollars, sell Euros
|
|
|
19.7
|
|
|
|
|
|
|
|
1.7
|
|
Buy Euros, sell CAD
|
|
|
11.9
|
|
|
|
|
|
|
|
(1.5
|
)
|
Other currencies
|
|
|
5.4
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total forward contracts
|
|
|
48.6
|
|
|
|
|
|
|
|
(1.3
|
)
|
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy U.S. dollars, sell Euros
|
|
|
10.6
|
|
|
|
1.5
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign currency derivatives
|
|
$
|
59.2
|
|
|
|
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 7 to the Consolidated Financial Statements in this
Form 10-K
for a description of these agreements.
Forward exchange contracts are recorded as a natural hedge when
the hedged item is a recorded asset or liability that is
revalued each accounting period, in accordance with
SFAS No. 52, Foreign Currency Translation.
For derivatives designated as natural hedges, changes in fair
values are reported in the Other income (expense)
line of the Consolidated Statements of Operations.
Other
Matters
The Company has a business conduct policy applicable to all
employees and regularly monitors compliance with that policy.
The Company has determined that it had no significant related
party transactions in each of the three years in the period
ended December 31, 2008.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
The information contained under the caption Financial Market
Risk Management included in Item 7 of this
Form 10-K
is incorporated herein by reference.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
23
FEDERAL
SIGNAL CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
24
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
of Federal Signal Corporation
We have audited the accompanying consolidated balance sheets of
Federal Signal Corporation as of December 31, 2008 and
2007, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2008. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Federal Signal Corporation at
December 31, 2008 and 2007, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2008, in accordance with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 5 to the consolidated financial
statements, on January 1, 2007, Federal Signal Corporation
changed its method of accounting for uncertain tax positions to
conform with Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes. Additionally, as discussed in Note 1 to the
consolidated financial statements, on December 31, 2006,
Federal Signal Corporation changed its method of accounting for
defined benefit pension and other postretirement benefit plans
to conform with SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106 and 132(R).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Federal Signal Corporations internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 27,
2009, expressed an unqualified opinion thereon.
Ernst & Young LLP
Chicago, IL
February 27, 2009
25
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Federal Signal Corporation
We have audited Federal Signal Corporations internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Federal Signal Corporations management is responsible for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in Managements Annual
Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Federal Signal Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Federal Signal Corporation as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended
December 31, 2008 of Federal Signal Corporation and our
report dated February 27, 2009 expressed an unqualified
opinion thereon.
Ernst & Young LLP
Chicago, IL
February 27, 2009
26
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in millions)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23.4
|
|
|
$
|
12.5
|
|
Short-term investments
|
|
|
10.0
|
|
|
|
|
|
Accounts receivable, net of allowances for doubtful accounts of
$2.0 million and $3.8 million, respectively
|
|
|
153.2
|
|
|
|
147.8
|
|
Inventories Note 2
|
|
|
137.1
|
|
|
|
121.8
|
|
Other current assets
|
|
|
21.6
|
|
|
|
28.6
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
345.3
|
|
|
|
310.7
|
|
Properties and equipment Note 3
|
|
|
65.4
|
|
|
|
59.5
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill Note 11
|
|
|
328.1
|
|
|
|
344.7
|
|
Intangible assets, net Note 11
|
|
|
47.8
|
|
|
|
65.2
|
|
Deferred tax assets Note 5
|
|
|
30.3
|
|
|
|
1.8
|
|
Deferred charges and other assets
|
|
|
4.4
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
Total assets of continuing operations
|
|
|
821.3
|
|
|
|
787.3
|
|
Assets of discontinued operations, net Note 12
|
|
|
12.7
|
|
|
|
382.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
834.0
|
|
|
$
|
1,169.6
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings Note 4
|
|
$
|
12.6
|
|
|
$
|
2.6
|
|
Current portion of long-term borrowings Note 4
|
|
|
25.1
|
|
|
|
45.4
|
|
Accounts payable
|
|
|
56.4
|
|
|
|
66.2
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Compensation and withholding taxes
|
|
|
25.1
|
|
|
|
26.8
|
|
Customer deposits
|
|
|
17.4
|
|
|
|
17.7
|
|
Other
|
|
|
49.8
|
|
|
|
56.6
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
186.4
|
|
|
|
215.3
|
|
Long-term borrowings Note 4
|
|
|
241.2
|
|
|
|
240.7
|
|
Long-term pension liabilities
|
|
|
58.0
|
|
|
|
12.6
|
|
Deferred gain Note 3
|
|
|
26.2
|
|
|
|
|
|
Other long-term liabilities
|
|
|
13.3
|
|
|
|
19.7
|
|
Deferred income taxes Note 5
|
|
|
|
|
|
|
25.2
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of continuing operations
|
|
|
525.1
|
|
|
|
513.5
|
|
Liabilities of discontinued operations Note 12
|
|
|
24.4
|
|
|
|
210.8
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
549.5
|
|
|
|
724.3
|
|
Shareholders equity Notes 8 and 9
|
|
|
|
|
|
|
|
|
Common stock, $1 par value per share, 90.0 million
shares authorized, 49.3 million and 49.4 million
shares issued, respectively
|
|
|
49.3
|
|
|
|
49.4
|
|
Capital in excess of par value
|
|
|
106.4
|
|
|
|
103.2
|
|
Retained earnings
|
|
|
226.4
|
|
|
|
333.8
|
|
Treasury stock, 1.9 million and 1.5 million shares,
respectively, at cost
|
|
|
(36.1
|
)
|
|
|
(30.1
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
Foreign currency translation, net
|
|
|
(4.1
|
)
|
|
|
15.9
|
|
Net derivative loss, cash flow hedges, net
|
|
|
(0.9
|
)
|
|
|
(2.0
|
)
|
Unrecognized pension and postretirement losses, net
|
|
|
(56.5
|
)
|
|
|
(24.9
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(61.5
|
)
|
|
|
(11.0
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
284.5
|
|
|
|
445.3
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
834.0
|
|
|
$
|
1,169.6
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
27
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in millions, except per share data)
|
|
|
Net sales
|
|
$
|
958.8
|
|
|
$
|
934.3
|
|
|
$
|
792.7
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
706.9
|
|
|
|
685.9
|
|
|
|
576.5
|
|
Selling, engineering, general and administrative
|
|
|
193.7
|
|
|
|
173.2
|
|
|
|
157.1
|
|
Restructuring charges Note 13
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
55.5
|
|
|
|
75.2
|
|
|
|
59.1
|
|
Interest expense
|
|
|
15.3
|
|
|
|
18.5
|
|
|
|
17.0
|
|
Loss on investment in joint venture
|
|
|
13.0
|
|
|
|
3.3
|
|
|
|
1.9
|
|
Other expense (income)
|
|
|
0.9
|
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
26.3
|
|
|
|
53.6
|
|
|
|
40.0
|
|
Income tax benefit (provision) Note 5
|
|
|
5.0
|
|
|
|
(13.9
|
)
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
31.3
|
|
|
|
39.7
|
|
|
|
31.2
|
|
Discontinued operations Note 12:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain from discontinued operations and disposal, net of
tax benefit of $18.0 million, $4.0 million and
$2.5 million, respectively
|
|
|
(126.9
|
)
|
|
|
15.2
|
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(95.6
|
)
|
|
$
|
54.9
|
|
|
$
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share Earnings from
continuing operations
|
|
$
|
0.66
|
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
(Loss) gain from discontinued operations and disposal, net of
taxes
|
|
|
(2.67
|
)
|
|
|
0.32
|
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share
|
|
$
|
(2.01
|
)
|
|
$
|
1.15
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
28
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock
|
|
|
Excess of
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
|
Par
|
|
|
Par
|
|
|
Retained
|
|
|
Treasury
|
|
|
Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
Earnings
|
|
|
Stock
|
|
|
Awards
|
|
|
Loss
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Balance at December 31, 2005
|
|
|
48.8
|
|
|
|
98.2
|
|
|
|
278.9
|
|
|
|
(18.1
|
)
|
|
|
(4.8
|
)
|
|
|
(26.7
|
)
|
|
|
376.3
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.7
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
|
10.0
|
|
Unrealized losses on derivatives, net of $1.3 million tax
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.2
|
)
|
|
|
(2.2
|
)
|
Minimum pension liability, net of $2.3 million tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.5
|
|
Adjustments to adopt SFAS 158, net of $4.8 million tax
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.2
|
)
|
|
|
(8.2
|
)
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
Reclassification of deferred stock awards
|
|
|
|
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Excess tax benefits on share based payments
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Awards and options
|
|
|
0.3
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(12.1
|
)
|
Other
|
|
|
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
49.1
|
|
|
$
|
99.8
|
|
|
$
|
290.7
|
|
|
$
|
(30.1
|
)
|
|
$
|
|
|
|
$
|
(23.1
|
)
|
|
$
|
386.4
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
54.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54.9
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.7
|
|
|
|
11.7
|
|
Unrealized losses on derivatives, net of $1.2 million tax
benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(2.0
|
)
|
Amortization of pension and postretirement losses, net of
$1.8 million tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.5
|
|
Adjustments to adopt FIN 48
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Adjustments to adopt SFAS 158, net of $0.0 million tax
expense
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.9
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards and options
|
|
|
0.3
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5
|
|
Excess tax benefits on share based payments
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
49.4
|
|
|
$
|
103.2
|
|
|
$
|
333.8
|
|
|
$
|
(30.1
|
)
|
|
$
|
|
|
|
$
|
(11.0
|
)
|
|
$
|
445.3
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(95.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95.6
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.0
|
)
|
|
|
(20.0
|
)
|
Unrealized gains on derivatives, net of $0.7 million tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Change in unrecognized losses related to pension benefit plans,
net of $16.3 million tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31.6
|
)
|
|
|
(31.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146.1
|
)
|
Adjustment to adopt EITF 06 04
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.5
|
)
|
Share based payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock and options
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
Stock awards
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Common stock cancelled
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
49.3
|
|
|
$
|
106.4
|
|
|
$
|
226.4
|
|
|
$
|
(36.1
|
)
|
|
$
|
|
|
|
$
|
(61.5
|
)
|
|
$
|
284.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
29
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in millions)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(95.6
|
)
|
|
$
|
54.9
|
|
|
$
|
22.7
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on discontinued operations and disposal
|
|
|
126.9
|
|
|
|
(15.2
|
)
|
|
|
8.5
|
|
Loss on joint venture
|
|
|
13.0
|
|
|
|
3.3
|
|
|
|
1.9
|
|
Depreciation and amortization
|
|
|
15.5
|
|
|
|
14.1
|
|
|
|
9.5
|
|
Stock option and award compensation expense
|
|
|
2.9
|
|
|
|
3.5
|
|
|
|
5.8
|
|
Provision for doubtful accounts
|
|
|
7.2
|
|
|
|
0.7
|
|
|
|
0.8
|
|
Deferred income taxes
|
|
|
(14.6
|
)
|
|
|
5.4
|
|
|
|
(2.0
|
)
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions of companies
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(16.2
|
)
|
|
|
3.5
|
|
|
|
(29.9
|
)
|
Inventories
|
|
|
(17.6
|
)
|
|
|
(18.5
|
)
|
|
|
(20.6
|
)
|
Other current assets
|
|
|
1.8
|
|
|
|
(0.6
|
)
|
|
|
(1.6
|
)
|
Accounts payable
|
|
|
(8.1
|
)
|
|
|
(2.5
|
)
|
|
|
12.2
|
|
Customer deposits
|
|
|
|
|
|
|
3.6
|
|
|
|
1.7
|
|
Accrued liabilities
|
|
|
(2.7
|
)
|
|
|
0.4
|
|
|
|
1.4
|
|
Income taxes
|
|
|
(8.0
|
)
|
|
|
(2.6
|
)
|
|
|
(1.3
|
)
|
Pension contributions
|
|
|
(11.5
|
)
|
|
|
(6.7
|
)
|
|
|
(11.3
|
)
|
Other
|
|
|
4.5
|
|
|
|
(1.0
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by continuing operating activities
|
|
|
(2.5
|
)
|
|
|
42.3
|
|
|
|
(2.6
|
)
|
Net cash provided by discontinued operating activities
|
|
|
126.2
|
|
|
|
23.1
|
|
|
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
123.7
|
|
|
|
65.4
|
|
|
|
29.7
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of properties and equipment
|
|
|
(28.5
|
)
|
|
|
(20.1
|
)
|
|
|
(12.2
|
)
|
Proceeds from sales of properties and equipment
|
|
|
38.0
|
|
|
|
0.6
|
|
|
|
0.2
|
|
Investment in joint venture
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
Payments for acquisitions, net of cash acquired
|
|
|
|
|
|
|
(147.5
|
)
|
|
|
|
|
Other, net
|
|
|
(10.1
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for continuing investing activities
|
|
|
(0.6
|
)
|
|
|
(168.7
|
)
|
|
|
(13.9
|
)
|
Net cash provided by (used for) discontinued investing activities
|
|
|
55.2
|
|
|
|
62.1
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
54.6
|
|
|
|
(106.6
|
)
|
|
|
(19.3
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (reduction) in short-term borrowings, net
|
|
|
0.6
|
|
|
|
(28.3
|
)
|
|
|
23.7
|
|
Proceeds from issuance of long-term borrowings
|
|
|
148.8
|
|
|
|
230.1
|
|
|
|
23.6
|
|
Repayment of long-term borrowings
|
|
|
(169.5
|
)
|
|
|
(142.2
|
)
|
|
|
(98.0
|
)
|
Purchases of treasury stock
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
(12.1
|
)
|
Cash dividends paid to shareholders
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
Other, net
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by continuing financing activities
|
|
|
(37.4
|
)
|
|
|
48.5
|
|
|
|
(73.2
|
)
|
Net cash used for discontinued financing activities
|
|
|
(129.3
|
)
|
|
|
(11.7
|
)
|
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by financing activities
|
|
|
(166.7
|
)
|
|
|
36.8
|
|
|
|
(83.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign exchange rate changes on cash
|
|
|
(0.7
|
)
|
|
|
1.1
|
|
|
|
2.2
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
10.9
|
|
|
|
(3.3
|
)
|
|
|
(70.4
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
12.5
|
|
|
|
15.8
|
|
|
|
86.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
23.4
|
|
|
$
|
12.5
|
|
|
$
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
30
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
($ in
millions, except per share data)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying
consolidated financial statements include the accounts of
Federal Signal Corporation and all of its significant
subsidiaries (the Company) and have been prepared in
accordance with accounting principles generally accepted in the
United States of America (GAAP). All significant
intercompany balances and transactions have been eliminated in
consolidation. These consolidated financial statements include
estimates and assumptions by management that effect the amounts
reported in the consolidated financial statements. Actual
results could differ from these estimates. The operating results
of businesses divested during 2008, 2007 and 2006 have been
excluded since the date of sale, and have been reported prior to
sale as discontinued operations (See Note 12 ). Certain
prior year amounts have been reclassified to conform to the
current presentation.
Foreign Operations: Assets and liabilities of
foreign subsidiaries, other than those whose functional currency
is the U.S. dollar, are translated at current exchange
rates with the related translation adjustments reported in
stockholders equity as a component of accumulated other
comprehensive income (loss). Income statement accounts are
translated at the average exchange rate during the period. Where
the U.S. dollar is considered the functional currency,
monetary assets and liabilities are translated at current
exchange rates with the related adjustment included in net
income. Non-monetary assets and liabilities are translated at
historical exchange rates. The Company incurs foreign currency
transaction gains/losses relating to assets and liabilities that
are denominated in a currency other than the functional
currency. For 2008, 2007 and 2006, the Company incurred foreign
currency transaction losses, included in other expenses in the
Statement of Operations, of $0.5 million, $0.4 million
and $0.6 million, respectively.
Cash equivalents: The Company considers all
highly liquid investments with a maturity of three-months or
less, when purchased, to be cash equivalents.
Short-term investments: Short term investments
are stated at cost since they represent highly liquid
certificates of deposit that mature June 11, 2009.
Accounts receivable, lease financing and other receivables
and allowances for doubtful accounts: A
receivable is considered past due if payments have not been
received within agreed upon invoice terms. The Companys
policy is generally to not charge interest on trade receivables
after the invoice becomes past due, but to charge interest on
lease receivables. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments on the outstanding
accounts receivable and outstanding lease financing and other
receivables. The allowances are each maintained at a level
considered appropriate based on historical and other factors
that affect collectibility. These factors include historical
trends of write-offs, recoveries and credit losses; portfolio
credit quality; and current and projected economic and market
conditions. If the financial condition of the Companys
customers were to deteriorate, resulting in a reduced ability to
make payments, additional allowances may be required.
Inventories: The Companys inventories
are stated at the lower of cost or market. At December 31,
2008 and 2007, approximately 78% of the Companys
inventories were costed using the FIFO method. The remaining
portion of the Companys inventories is costed using the
LIFO
(last-in,
first-out) method. Included in the cost of inventories are raw
materials, direct wages and associated production costs.
Properties and depreciation: Properties and
equipment are stated at cost. Depreciation, for financial
reporting purposes, is computed principally on the straight-line
method over the estimated useful lives of the assets.
Depreciation ranges from 8 to 40 years for buildings and 3
to 15 years for machinery and equipment. Leasehold
improvements are depreciated over the shorter of the remaining
life of the lease or the useful life of the improvement.
Property, plant and equipment and other long-term assets are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected undiscounted cash flows
is less than the carrying value of the related asset or group of
assets, a loss is
31
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses
necessarily involve significant judgment.
Intangible assets: Intangible assets
principally consist of costs in excess of fair values of net
assets acquired in purchase transactions. These assets are
assessed yearly for impairment in the fourth quarter and also
between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. Definite lived
intangible assets are amortized using the straight-line method.
Stock-based compensation plans: The Company
has various stock-based compensation plans, described more fully
in Note 8.
The Company accounts for stock-based compensation in accordance
with the provisions of SFAS 123(R). The fair value stock
options are determined using a Black-Scholes option pricing
model.
Use of estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Warranty: Sales of many of the Companys
products carry express warranties based on the terms that are
generally accepted in the Companys marketplaces. The
Company records provisions for estimated warranty at the time of
sale based on historical experience and periodically adjusts
these provisions to reflect actual experience. Infrequently, a
material warranty issue can arise which is beyond the scope of
the Companys historical experience. The Company provides
for these issues as they become probable and estimable.
Product liability and workers compensation
liability: Due to the nature of the
Companys products, the Company is subject to claims for
product liability and workers compensation in the normal
course of business. The Company is self-funded for a portion of
these claims. The Company establishes a reserve using a
third-party actuary for any known outstanding matters, including
a reserve for claims incurred but not yet reported.
Financial instruments: The Company enters into
agreements (derivative financial instruments) to manage the
risks associated with interest rates and foreign exchange rates.
The Company does not actively trade such instruments nor enter
into such agreements for speculative purposes. The Company
principally utilizes two types of derivative financial
instruments: 1) interest rate swaps to manage its interest
rate risk, and 2) foreign currency forward exchange and
option contracts to manage risks associated with sales and
expenses (forecast or committed) denominated in foreign
currencies.
On the date a derivative contract is entered into, the Company
designates the derivative as one of the following types of
hedging instruments and accounts for the derivative as follows:
Fair value hedge: A hedge of a recognized
asset or liability or an unrecognized firm commitment is
declared as a fair value hedge. For fair value hedges, both the
effective and ineffective portions of the changes in the fair
value of the derivative, along with the gain or loss on the
hedged item that is attributable to the hedged risk, are
recorded in earnings and reported in the consolidated statements
of operations on the same line as the hedged item.
Cash flow hedge: A hedge of a forecast
transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability is declared
as a cash flow hedge. The effective portion of the change in the
fair value of a derivative that is declared as a cash flow hedge
is recorded in accumulated other comprehensive income. When the
hedged item impacts the statement of operations, the gain or
loss previously included in accumulated other comprehensive
income is reported on the same line in the consolidated
statements of operations as the hedged item. In addition, both
the fair value of changes excluded from the Companys
effectiveness
32
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
assessments and the ineffective portion of the changes in the
fair value of derivatives used as cash flow hedges are reported
in selling, general and administrative expenses in the
consolidated statements of operations.
The Company formally documents its hedge relationships,
including identification of the hedging instruments and the
hedged items, as well as its risk management objectives and
strategies for undertaking the hedge transaction. Derivatives
are recorded in the consolidated balance sheets at fair value in
other deferred charges and assets and other accrued liabilities.
This process includes linking derivatives that are designated as
hedges of specific forecast transactions. The Company also
formally assesses, both at inception and at least quarterly
thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in
either the fair value or cash flows of the hedged item. If it is
determined that a derivative ceases to be a highly effective
hedge, or if the anticipated transaction is no longer likely to
occur, the Company discontinues hedge accounting, and any
deferred gains or losses are recorded in selling, general and
administrative expenses. Amounts related to terminated interest
rate swaps are deferred and amortized as an adjustment to
interest expense over the original period of interest exposure,
provided the designated liability continues to exist or is
probable of occurring.
Fair value of financial instruments: In
September 2006, the Financial Accounting Standards Board (FASB)
issued FAS 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles
(GAAP) and expands disclosure about fair value
measurements. In February 2008, the FASB issued FASB Staff
Position
No. 157-b,
Effective Date of FASB Statement No. 157
(FSP 157-b), which provides a one year deferral
of the effective date of FAS 157 for non-financial assets
and non-financial liabilities, except those that are recognized
or disclosed in the financial statements at fair value at least
annually. In accordance with this interpretation, the Company
has only adopted the provisions of FAS 157 with respect to
its financial assets and liabilities that are measured at fair
value within the financial statements as of January 1,
2008. The adoption of FAS 157 did not have a material
impact on the Companys fair value measurements. The
provisions of FAS 157 have not been applied to
non-financial assets and non-financial liabilities.
In February 2007, the FASB issued FAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities including an amendment to FASB Statement
No. 115, which permits entities to choose to measure
many financial instruments and certain other items at fair value
that are not currently required to be measured at fair value.
The Company adopted this statement as of January 1, 2008
and has elected not to apply the fair value option to any of its
financial instruments at this time.
Split-dollar life insurance arrangements: In
September 2006, the EITF issued
EITF 06-04,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Split-Dollar Life Insurance
Arrangements.
EITF 06-04
concludes that an employer should recognize a liability for
post-employment benefits promised to an employee. This guidance
is effective for fiscal years beginning after December 15,
2007. The Company has one arrangement that meets these criteria
and has recorded a liability of approximately $0.3 million
in 2008.
Earnings (loss) per share: Basic earnings
(loss) per share is computed by dividing net income (loss) by
the weighted average common shares outstanding, which totaled
47.7 million, 47.9 million and 48.0 million for
2008, 2007 and 2006, respectively. Diluted earnings (loss) per
share is calculated by dividing net income (loss) by the
weighted average common shares outstanding plus additional
common shares that would have been outstanding assuming the
exercise of stock options that are dilutive. The Company uses
the treasury stock method to calculate dilutive shares. The
weighted average number of shares outstanding for diluted
earnings (loss) per share were 47.7 million,
47.9 million and 48.0 million for 2008, 2007 and 2006,
respectively. In 2008, 2007 and 2006, options to purchase
2.5 million, 2.4 million and 2.6 million shares
of common stock, respectively, were excluded from the
calculation of the number of shares outstanding as their effects
were anti-dilutive. For the year ended December 31, 2008,
28,503 performance share units were also excluded from the
calculation of the number of shares outstanding for diluted
earnings per share because their effects were anti-dilutive.
33
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Revenue recognition: The Company recognizes
revenue when all of the following are satisfied: persuasive
evidence of an arrangement exists, the price is fixed or
determinable, collectibility is reasonably assured and title has
passed or services have been rendered. Typically, title passes
at time of shipment, however occasionally title passes later or
earlier than shipment due to customer contracts or letter of
credit terms. Infrequently, a sales contract qualifies for
percentage of completion or for multiple-element accounting. For
percentage of completion revenues, the Company utilizes the
cost-to-cost method and the contract payments are received as
progress payments as costs are incurred or based on installation
and performance milestones. At the inception of a sales-type
lease, the Company records the product sales price and related
costs and expenses of the sale. Financing revenues are included
in income over the life of the lease. Management believes that
all relevant criteria and conditions are considered when
recognizing revenues.
Net sales: Net sales are net of returns and
allowances. Returns and allowances are calculated and recorded
as a percentage of revenue based upon historical returns. Gross
sales includes sale of products and billed freight related to
product sales. Freight has not historically comprised a material
component of gross sales.
Product shipping costs: Product shipping costs
are expensed as incurred and are included in cost of sales.
Postretirement benefits: In September 2006,
the FASB issued Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment
of FASB Statements No. 87, 88, 106, and 132R
(SFAS 158). Under SFAS 158, the funded
status of each pension and other postretirement benefit plan at
the year-end measurement date is required to be reported as an
asset (for overfunded plans) or a liability (for underfunded
plans), replacing the accrued or prepaid asset currently
recorded and reversing any amounts previously recorded with
respect to any additional minimum liability.
The Company adopted the recognition provisions of SFAS 158
effective December 31,2006. As a result of adopting the
recognition provisions, the Company recognized an increase in
accumulated other comprehensive loss of $8.2 million, net
of a $4.8 million tax benefit.
The Company also adopted the measurement date provisions of
SFAS 158 as of December 31, 2007. Previously, the
Companys non-US defined benefit plan had a
September 30 measurement date. The effect of this adoption
increased pension assets and retained earnings by
$0.4 million.
Investments: In 2005, the Company entered into
an agreement with the Shanghai Environmental Sanitary Vehicle
and Equipment Factory (SHW) and United Motor Works (UMW) to form
a joint venture (China Joint Venture) to manufacture
specialty vehicles in the Peoples Republic of China. The
investment in the joint venture is accounted for under the
equity method in accordance with APB No. 18. The
Companys 50% interest in the venture does not represent a
controlling interest. In February 2009, the Company decided to
terminate funding to this venture as a review of the market and
forecasts of the joint ventures cash flows indicated its
bank debt was unlikely to be repaid and that its assets were
impaired. A charge of $10.4 million was taken in 2008 and
reported in the Statements of Operations as loss on investment
in joint venture to write-down completely the Companys
investment and to reflect the Companys $9.4 million
obligation to guaranty the debt of the joint venture and
$1.0 million obligation to guaranty the investment of UMW.
The debt guaranty is included in Short-term Borrowings and the
investment guaranty is included in Accrued
liabilities Other in the Consolidated Balance Sheet
at December 31, 2008. The Companys share of operating
losses was $2.6 million, $3.3 million and
$1.9 million in each of the three years ended
December 31, 2008, 2007, and 2006, respectively.
34
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
NOTE 2
INVENTORIES
Inventories at December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
67.0
|
|
|
$
|
62.3
|
|
Work in process
|
|
|
34.1
|
|
|
|
26.4
|
|
Finished goods
|
|
|
36.0
|
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
137.1
|
|
|
$
|
121.8
|
|
|
|
|
|
|
|
|
|
|
If the Company had used the
first-in,
first-out cost method exclusively, which approximates
replacement cost, inventories would have aggregated
$141.5 million and $125.2 million at December 31,
2008 and 2007, respectively.
NOTE 3
PROPERTIES AND EQUIPMENT
Properties and equipment at December 31 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
$
|
1.4
|
|
|
$
|
3.6
|
|
Buildings and improvements
|
|
|
20.7
|
|
|
|
31.9
|
|
Machinery and equipment
|
|
|
141.3
|
|
|
|
126.4
|
|
Accumulated depreciation
|
|
|
(98.0
|
)
|
|
|
(102.4
|
)
|
|
|
|
|
|
|
|
|
|
Total properties and equipment
|
|
$
|
65.4
|
|
|
$
|
59.5
|
|
|
|
|
|
|
|
|
|
|
In July 2008, the Company entered into sale-leaseback
transactions for its Elgin and University Park, Illinois plant
locations. Net proceeds received were $35.8 million
resulting in a deferred gain of $29.0 million. The deferred
gain will be amortized over the
15-year life
of the respective leases.
The Company leases certain facilities and equipment under
operating leases, some of which contain options to renew. Total
rental expense on all operating leases was $9.5 million in
2008, $8.0 million in 2007 and $6.1 million in 2006.
Sublease income and contingent rentals relating to operating
leases were insignificant. At December 31, 2008, minimum
future rental commitments under operating leases having
noncancelable lease terms in excess of one year aggregated
$74.9 million payable as follows: $9.9 million in
2009, $7.5 million in 2010, $6.5 million in 2011,
$5.6 million in 2012, $4.6 million in 2013 and
$40.8 million thereafter.
NOTE 4
DEBT
Short-term borrowings at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Capital lease obligations
|
|
$
|
|
|
|
$
|
1.8
|
|
China Joint Venture debt guarantee
|
|
|
9.4
|
|
|
|
|
|
Other foreign lines of credit
|
|
|
3.2
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings
|
|
$
|
12.6
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
35
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Long-Term Borrowings at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
6.79% Unsecured Private Placement note with annual installments
of $10.0 million due
2008-2011
|
|
$
|
30.0
|
|
|
$
|
40.0
|
|
6.37% Unsecured Private Placement note with annual installments
of $10.0 million due
2005-2008
|
|
|
|
|
|
|
10.0
|
|
6.60% Unsecured Private Placement note with annual installments
of $7.1 million due
2008-2011
|
|
|
21.4
|
|
|
|
28.6
|
|
4.93% Unsecured Private Placement note with annual installments
of $8.0 million due
2008-2012
|
|
|
32.0
|
|
|
|
40.0
|
|
5.24% Unsecured Private Placement note due 2012
|
|
|
60.0
|
|
|
|
60.0
|
|
Unsecured Private Placement note, floating rate (4.83% and 5.87%
at December 31, 2008 and 2007, respectively) due
2010-2013
|
|
|
30.0
|
|
|
|
50.0
|
|
Amended Loan Agreement (described below)
|
|
|
|
|
|
|
96.6
|
|
Alternative Currency Facility (within Revolving Credit Facility)
|
|
|
10.1
|
|
|
|
32.6
|
|
Revolving Credit Facility
|
|
|
86.9
|
|
|
|
66.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270.4
|
|
|
|
423.8
|
|
Fair value of interest rate swaps
|
|
|
1.1
|
|
|
|
(1.0
|
)
|
Unamortized balance of terminated fair value interest rate swaps
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272.1
|
|
|
|
423.5
|
|
Less current maturities, excluding financial services activities
|
|
|
(25.1
|
)
|
|
|
(45.4
|
)
|
Less financial services activities borrowings
(included in discontinued operations)
|
|
|
(5.8
|
)
|
|
|
(137.4
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings, net
|
|
$
|
241.2
|
|
|
$
|
240.7
|
|
|
|
|
|
|
|
|
|
|
The Company has a $250.0 million line that expires
April 25, 2012 under its Revolving Credit Facility.
Borrowings under the facility bear interest, at the
Companys option, at the Base Rate or LIBOR, plus an
applicable margin. The applicable margin ranges from 0.00% to
0.75% for Base Rate borrowings and 1.00% to 2.00% for LIBOR
borrowings depending on the Companys total indebtedness to
capital ratio. At December 31, 2008, the Companys
applicable margin over LIBOR and Base Rate borrowings was 1.50%
and 0.25%, respectively.
On September 6, 2007 Federal Signal of Europe B.V. y CIA ,
SC, a restricted subsidiary of the Company, entered into a
Supplemental Agreement to the Companys Second Amended and
Restated Credit Agreement (Alternative Currency
Facility) whereby Federal Signal of Europe B.V. y CIA ,
SC, became a Designated Alternative Currency Borrower for the
purpose of making swing loans denominated in Euros.
In March 2008, the Company requested and was granted an
amendment (the Second Credit Amendment) to the
Revolving Credit Facility. Affected items in the Second Credit
Amendment included the definitions of Consolidated Net Worth and
EBIT, reducing the Total Indebtedness to Capital ratio maximum
to .50, reducing the minimum Interest Coverage Ratio requirement
which ranged from 2:1 to 2.75:1 for the four quarters ending in
2008, reducing the required minimum percentage of consolidated
assets directly owned by the Credit Agreements borrower
and guarantors to 50%. The amendment allowed for the
unencumbered sale of the
E-One
business.
As of December 31, 2008, 7.2 million (or
$10.1 million), was drawn on the Alternative Currency
Facility and $86.9 million was drawn on the Second Amended
Credit Agreement for a total of $97.0 million drawn under
the Second Amended Credit Agreement leaving available borrowings
of $153.0 million.
36
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Weighted average interest rates on short-term borrowings were
5.94% and 6.95% at December 31, 2008 and 2007, respectively.
On March 24, 2005,
E-ONE, Inc.
(E-ONE),
formerly a wholly-owned subsidiary of the Company, entered into
a loan agreement with Banc of America Leasing &
Capital, LLC (the Loan Agreement) under a
nonrecourse loan facility.
E-Ones
indebtedness and other obligations under the Loan Agreement were
payable out of certain customer leases of emergency equipment
and other collateral as described in the Loan Agreement. In
December 2007, the Loan Agreement was amended to include
customer leases of
E-One Inc.,
E-One New
York, Inc., Elgin Sweeper Company and Vactor Manufacturing, Inc.
(Amended Loan Agreement). In August 2008, the
outstanding debt of the Amended Loan Agreement was paid in full,
prior to the sale of
E-ONE.
Aggregate maturities of total borrowings amount to approximately
$37.7 million in 2009, $45.2 million in 2010,
$25.1 million in 2011, $165.0 million in 2012 and
$10.0 million in 2013. The fair values of these borrowings
aggregated $286.3 million and $430.1 million at
December 31, 2008 and 2007, respectively. Included in 2009
maturities of $37.7 million are $9.4 million
associated with the Companys guaranty of the China Joint
Venture debt, $3.2 million on other foreign lines of credit
and $25.1 million private placement debt amortization.
For each of the above Private Placement notes, covenants include
a maximum debt-to-capitalization ratio of 60% and minimum net
worth of $275.0 million. At December 31, 2008, all of
the Companys retained earnings were free of any
restrictions and the Company was in compliance with the
financial covenants and agreements.
At December 31, 2008 and 2007, deferred financing fees,
which are amortized over the remaining life of the debt, totaled
$1.3 million and $1.5 million, respectively, and are
included in other deferred charges and assets on the balance
sheet.
The Company paid interest of $21.4 million in 2008,
$26.2 million in 2007 and $24.4 million in 2006. See
Note 7 regarding the Companys utilization of
derivative financial instruments relating to outstanding debt.
NOTE 5
INCOME TAXES
The provision/(benefit) for income taxes for each of the three
years in the period ended December 31, 2008 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3.3
|
|
|
$
|
2.6
|
|
|
$
|
6.1
|
|
Foreign
|
|
|
5.8
|
|
|
|
6.0
|
|
|
|
4.6
|
|
State and local
|
|
|
0.5
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.6
|
|
|
|
8.5
|
|
|
|
10.8
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(14.9
|
)
|
|
|
4.9
|
|
|
|
(2.8
|
)
|
Foreign
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
State and local
|
|
|
(0.1
|
)
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.6
|
)
|
|
|
5.4
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) provision
|
|
$
|
(5.0
|
)
|
|
$
|
13.9
|
|
|
$
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Differences between the statutory federal income tax rate and
the effective income tax rate for each of the three years in the
period ended December 31, 2008 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
2.1
|
|
|
|
2.5
|
|
|
|
1.5
|
|
Losses on China Joint Venture and legal entity restructuring
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
|
|
Dividend repatriation
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
|
|
Capital loss utilization via sale/leaseback
|
|
|
(31.5
|
)
|
|
|
|
|
|
|
|
|
Exports benefit
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
Tax reserves
|
|
|
0.4
|
|
|
|
1.5
|
|
|
|
(4.4
|
)
|
R&D tax credits
|
|
|
(2.2
|
)
|
|
|
(1.0
|
)
|
|
|
(1.1
|
)
|
Foreign tax rate effects
|
|
|
(9.8
|
)
|
|
|
(4.3
|
)
|
|
|
(3.9
|
)
|
Foreign financing strategies
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
(0.9
|
)
|
Capital loss Canadian legal entity restructuring
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
Other, net
|
|
|
(0.8
|
)
|
|
|
(1.1
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(19.0
|
)%
|
|
|
25.9
|
%
|
|
|
22.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 2008 effective tax rate of (19.0)% reflects a
benefit of $8.2 million for the utilization of capital loss
carryforwards resulting from the sale-leaseback transaction for
two U.S. based manufacturing facilities and a benefit of
$3.1 million for losses in the China Joint Venture
previously not recognized.
Deferred income tax assets and liabilities at December 31 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
19.5
|
|
|
$
|
12.8
|
|
Net operating loss, capital loss, alternative minimum tax,
research and development, and foreign tax credit carryforwards
|
|
|
61.8
|
|
|
|
40.8
|
|
Tax effect of items in other comprehensive income
|
|
|
31.2
|
|
|
|
6.4
|
|
Other
|
|
|
3.0
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
115.5
|
|
|
|
60.1
|
|
Valuation allowance
|
|
|
(33.9
|
)
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
81.6
|
|
|
|
44.2
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(38.0
|
)
|
|
|
(51.8
|
)
|
Revenue recognition
|
|
|
(0.6
|
)
|
|
|
(0.8
|
)
|
Pension liabilities
|
|
|
(9.9
|
)
|
|
|
(6.4
|
)
|
Undistributed earnings of
non-U.S.
subsidiary
|
|
|
(1.0
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(49.5
|
)
|
|
|
(59.7
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
32.1
|
|
|
$
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
Federal and state income taxes have not been provided on
accumulated undistributed earnings of certain foreign
subsidiaries aggregating approximately $79.6 million at
December 31, 2008, as such earnings have been
38
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
reinvested in the business. The determination of the amount of
the unrecognized deferred tax liability related to the
undistributed earnings is not practicable.
The deferred tax asset for tax loss carryforwards includes
Federal net operating loss carryforwards of $4.8 million,
which begin to expire in 2029, state net operating loss
carryforwards of $1.5 million, which will begin to expire
in 2019; foreign net operating loss carryforwards of
$2.7 million of which $1.4 million has an indefinite
life; $29.8 million for capital loss carryforwards that
will expire in 2012 and 2013. The deferred tax asset for tax
credit carryforwards includes U.S. research tax credit
carryforwards of $5.0 million, which will begin to expire
in 2022, U.S. foreign tax credits of $14.2 million,
which will begin to expire in 2015 and U.S. alternative
minimum tax credit carryforwards of $3.8 million with no
expiration.
Valuation allowances totaling $33.9 million have been
established and include $1.4 million related to state net
operating loss carryforwards and $2.7 million related to
the foreign net operating loss carryforwards and
$29.8 million related to capital loss carryforwards.
The net deferred tax asset at December 31 is classified in the
balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Current net deferred tax assets (included in Other current
assets in the Consolidated Balance Sheets)
|
|
$
|
1.8
|
|
|
$
|
9.8
|
|
Long-term net deferred tax asset (liability)
|
|
|
30.3
|
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32.1
|
|
|
$
|
(15.5
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the Company is in a
net U.S. deferred tax asset position of
$42.3 million. Additionally, the Company has incurred
cumulative domestic losses for the last three years. Under the
provisions of FAS 109, the Company may be required to
establish a valuation allowance for its U.S. deferred tax
assets. However, FAS 109 provides that a valuation
allowance may not be needed if the Company can demonstrate a
strong earnings history exclusive of the losses that created the
deferred tax assets coupled with evidence indicating that loss
is due to an unusual, infrequent, or extraordinary item and not
a continuing condition. The Company considers that the
cumulative three year domestic loss was primarily due to losses
recorded on discontinued operations and disposal during the
three year period and accordingly, no valuation allowance has
been established for the net U.S. deferred tax asset
position as of December 31, 2008.
The Company paid income taxes of $6.1 million in 2008,
$7.0 million in 2007 and $6.9 million in 2006.
Income from continuing operations before taxes for each of the
three years in the period ended December 31, 2008 consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
United States
|
|
$
|
1.4
|
|
|
$
|
31.4
|
|
|
$
|
23.0
|
|
Non-U.S
|
|
|
24.9
|
|
|
|
22.2
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26.3
|
|
|
$
|
53.6
|
|
|
$
|
40.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 1, 2007, the Company adopted the provisions of
FIN 48. As a result, an increase of $0.7 million in
the liability for unrecognized tax benefits and a
$0.7 million reduction in retained earnings were recorded
in 2007.
39
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The following table summarizes the activity related to the
Companys unrecognized tax benefits:
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
6.2
|
|
Increases related to current year tax positions
|
|
|
1.8
|
|
Increases from prior period positions
|
|
|
0.6
|
|
Decreases due to lapse of statute of limitations
|
|
|
(0.2
|
)
|
Decreases from prior periods
|
|
|
(0.1
|
)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
8.3
|
|
Increases related to current year tax positions
|
|
|
0.8
|
|
Decreases due to settlements with tax authorities
|
|
|
(0.9
|
)
|
Decreases due to lapse of statute of limitations
|
|
|
(0.7
|
)
|
Decreases from prior periods
|
|
|
(2.5
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
5.0
|
|
|
|
|
|
|
Included in the unrecognized tax benefits of $5.0 million
at December 31, 2008 was $4.4 million of tax benefits
that if recognized, would impact our annual effective tax rate.
The Companys continuing practice is to recognize interest
and penalties related to income tax matters in income tax
expense. Interest and penalties amounting to $0.8 million
and $0.1 million, respectively, are included in the
consolidated balance sheet but are not included in the table
above. We expect our unrecognized tax benefits to decrease by
$0.4 million over the next 12 months.
We file U.S., state and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2005
through 2008 tax years generally remain subject to examination
by federal and most state tax authorities. In significant
foreign jurisdictions, the 2003 through 2008 tax years generally
remain subject to examination by their respective tax
authorities.
NOTE 6
POSTRETIREMENT BENEFITS
The Company and its subsidiaries sponsor a number of defined
benefit retirement plans covering certain of its salaried and
hourly employees. Benefits under these plans are primarily based
on final average compensation and years of service as defined
within the provisions of the individual plans. The Company also
participates in a retirement plan that provides defined benefits
to employees under certain collective bargaining agreements.
The Company uses a December 31 measurement date for its
U.S. and
non-U.S. benefit
plans in accordance with SFAS 158.
40
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The components of net periodic pension expense for each of the
three years in the period ended December 31, 2008 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Company-sponsored plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
0.9
|
|
|
$
|
1.8
|
|
|
$
|
4.3
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest cost
|
|
|
8.7
|
|
|
|
8.8
|
|
|
|
8.6
|
|
|
|
3.3
|
|
|
|
3.1
|
|
|
|
2.7
|
|
Expected return on plan assets
|
|
|
(10.8
|
)
|
|
|
(10.9
|
)
|
|
|
(9.9
|
)
|
|
|
(4.0
|
)
|
|
|
(4.2
|
)
|
|
|
(3.8
|
)
|
Amortization of actuarial loss
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
1.4
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment charge
|
|
|
0.4
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement charge
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
|
|
1.3
|
|
|
|
5.8
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Multiemployer plans
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense (income)
|
|
$
|
5.9
|
|
|
$
|
1.5
|
|
|
$
|
6.1
|
|
|
$
|
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 21, 2008, the Company sold its Die and Mold
Operations. The operations were included in discontinued
operations for all periods presented through the sale date. As a
result of an amendment related to this sale, the Company was
required to recognize a curtailment adjustment of
$0.4 million and subsequently, a settlement charge of
$5.9 million under SFAS No. 88,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Plans and for Termination
Benefits. Pension expense relating to the Tool segment
employees, excluding the previously mentioned charges, was
$0.3 million, $1.3 million and $1.9 million for
each of the three years ended December 31, 2008, 2007 and
2006, respectively.
The remeasurement of these defined benefit plans as a result of
the sale of the Die and Mold Operations also included a change
in the weighted average discount rate to determine pension costs
from 6.45% used at January 1, 2008 to 6.6% at the
May 1, 2008 remeasurement date, and to 6.8% at the
July 1, 2008 remeasurement date.
On April 28, 2008, an amendment to the Companys
U.S. defined benefit plans for University Park, Illinois
IBEW employees within the Safety and Security Systems Group was
approved. The amendment froze service accruals for these
employees as of December 31, 2008. On July 17, 2006, a
similar amendment to the Companys defined benefit plans
for all U.S. employees, except for Tool segment employees
and University Park, Illinois IBEW employees within the Safety
and Security Systems Group was approved by the Companys
Board of Directors. The amendment froze service accruals for
these employees as of December 31, 2006. The participants
do, however, continue to accrue benefits resulting from future
salary increases through 2016. As a result of the amendment, the
Company was required to recognize a curtailment charge under
SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Plans and for
Termination Benefits due to the recognition of prior
service costs. The Company recognized a curtailment charge of
$1.3 million measured at July 1, 2006, which was
recorded during the quarter ended September 30, 2006 and is
recognized in the table above, reflecting the unamortized
portion of prior benefit changes.
41
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The following table summarizes the weighted-average assumptions
used in determining pension costs in each of the three years in
the period ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
6.8
|
%
|
|
|
6.0
|
%
|
|
|
6.1
|
%
|
|
|
5.9
|
%
|
|
|
5.8
|
%
|
|
|
5.2
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A
|
*
|
|
|
N/A
|
*
|
|
|
NA
|
*
|
Expected long term rate of return on plan assets
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
6.6
|
%
|
|
|
6.9
|
%
|
|
|
7.0
|
%
|
|
|
|
* |
|
Non-U.S.
plan benefits are not adjusted for compensation level changes |
The following summarizes the changes in the projected benefit
obligation and plan assets, the funded status of the
Company-sponsored plans and the major assumptions used to
determine these amounts at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
142.5
|
|
|
$
|
143.2
|
|
|
$
|
61.3
|
|
|
$
|
59.0
|
|
Service cost
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Interest cost
|
|
|
8.7
|
|
|
|
8.8
|
|
|
|
3.3
|
|
|
|
3.1
|
|
Actuarial (gain)/loss
|
|
|
(1.9
|
)
|
|
|
(6.4
|
)
|
|
|
(3.4
|
)
|
|
|
2.1
|
|
Benefits paid
|
|
|
(21.2
|
)
|
|
|
(4.9
|
)
|
|
|
(3.0
|
)
|
|
|
(3.9
|
)
|
Curtailments
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation and other
|
|
|
|
|
|
|
|
|
|
|
(15.8
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
129.7
|
|
|
$
|
142.5
|
|
|
$
|
42.6
|
|
|
$
|
61.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation, end of year
|
|
$
|
125.2
|
|
|
$
|
129.8
|
|
|
$
|
42.6
|
|
|
$
|
61.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the weighted-average assumptions
used in determining benefit obligations as of December 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
Non-U.S. Benefit Plan
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Discount rate
|
|
|
6.5
|
%
|
|
|
6.45
|
%
|
|
|
5.9
|
%
|
|
|
5.8
|
%
|
Rate of increase in compensation levels
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
132.9
|
|
|
$
|
125.0
|
|
|
$
|
63.3
|
|
|
$
|
58.7
|
|
Actual return on plan assets
|
|
|
(42.6
|
)
|
|
|
7.8
|
|
|
|
(8.2
|
)
|
|
|
5.7
|
|
Company contribution
|
|
|
10.0
|
|
|
|
5.0
|
|
|
|
1.6
|
|
|
|
1.7
|
|
Benefits and expenses paid
|
|
|
(21.2
|
)
|
|
|
(4.9
|
)
|
|
|
(2.9
|
)
|
|
|
(3.9
|
)
|
Translation and other
|
|
|
|
|
|
|
|
|
|
|
(14.9
|
)
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
79.1
|
|
|
$
|
132.9
|
|
|
$
|
38.9
|
|
|
$
|
63.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The amounts included in Translation and other in the preceding
tables reflect the impact of the change in measurement date from
September 30 to December 31 for the year ended December 31,
2007 as well as foreign exchange translation for the
non-U.S. benefit
plan.
The following table summarizes the Companys asset
allocations for its benefits plans as of December 31, 2008
and 2007 and the target allocation for 2009 by asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Target
|
|
|
Plan Assets as of
|
|
|
Target
|
|
|
Plan Assets as of
|
|
|
|
Percent
|
|
|
December 31
|
|
|
Percent
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Equity securities
|
|
|
60-85
|
%
|
|
|
72
|
%
|
|
|
74
|
%
|
|
|
50-70
|
%
|
|
|
52
|
%
|
|
|
60
|
%
|
Fixed income securities
|
|
|
10-30
|
%
|
|
|
14
|
%
|
|
|
16
|
%
|
|
|
30-50
|
%
|
|
|
36
|
%
|
|
|
30
|
%
|
Alternative investments
|
|
|
0-15
|
%
|
|
|
14
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investment strategy for the U.S. benefit plans is to
1) maintain a diversified portfolio that can provide a
weighted-average target return of 8.5% or more, 2) maintain
liquidity to meet obligations and 3) prudently manage
administrative and management costs. The plan invests in equity,
alternative and fixed income instruments. The asset allocation
is reviewed regularly and portfolio investments are rebalanced
periodically when considered appropriate. The use of derivatives
is allowed in limited circumstances. The plan held no
derivatives during the years ended December 31, 2008 and
2007.
Plan assets for the
non-U.S. benefit
plan consist principally of a diversified portfolio of equity
securities, U.K. government obligations and fixed interest
securities.
As of December 31, 2008 and 2007, equity securities
included 0.2 million shares of the Companys common
stock valued at $1.9 million and $2.7 million,
respectively. Dividends paid on the Companys common stock
to the pension trusts aggregated $0.1 million in each of
the years ended December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Funded status, end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
79.1
|
|
|
$
|
132.9
|
|
|
$
|
38.9
|
|
|
$
|
63.3
|
|
Benefit obligations
|
|
|
129.7
|
|
|
|
142.5
|
|
|
|
42.6
|
|
|
|
61.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(50.6
|
)
|
|
$
|
(9.6
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Balance Sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Long term pension liabilities
|
|
$
|
(50.6
|
)
|
|
$
|
(9.6
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
N/A
|
|
Other current assets
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
2.0
|
|
Accumulated other comprehensive loss, pre-tax
|
|
|
71.4
|
|
|
|
26.1
|
|
|
|
16.0
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
20.8
|
|
|
$
|
16.5
|
|
|
$
|
12.3
|
|
|
$
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Amounts recognized in Accumulated Other Comprehensive Income
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit Plans
|
|
|
Non-U.S. Benefit Plan
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net actuarial loss
|
|
$
|
71.4
|
|
|
$
|
25.7
|
|
|
$
|
16.0
|
|
|
$
|
13.2
|
|
Prior service cost
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized, pre-tax
|
|
$
|
71.4
|
|
|
$
|
26.1
|
|
|
$
|
16.0
|
|
|
$
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects $3.1 million relating to amortization
of the actuarial loss to be amortized from Accumulated Other
Comprehensive Income into Net Periodic Benefit Cost in 2009.
The Company expects to contribute up to $10.0 million to
the U.S. benefit plans in 2009 and up to $1.0 million
to the
non-U.S. plan.
Future contributions to the plans will be based on such factors
as annual service cost as well as return on plan asset values,
interest rate movements and benefit payments.
The following table presents the benefits expected to be paid
under the Companys defined benefit plans in each of the
next five years, and in aggregate for the five years thereafter:
|
|
|
|
|
|
|
|
|
|
|
U.S. Benefit
|
|
|
Non-U.S.
|
|
|
|
Plans
|
|
|
Benefit Plan
|
|
|
2009
|
|
$
|
6.1
|
|
|
$
|
2.1
|
|
2010
|
|
|
6.6
|
|
|
|
2.2
|
|
2011
|
|
|
7.0
|
|
|
|
2.3
|
|
2012
|
|
|
7.3
|
|
|
|
2.4
|
|
2013
|
|
|
7.9
|
|
|
|
2.5
|
|
2014-2018
|
|
|
46.2
|
|
|
|
13.9
|
|
The Company also sponsors a number of defined contribution
pension plans covering a majority of its employees. Through 2006
participation in the plans was at each employees election
and Company contributions to these plans were based on a
percentage of employee contributions. Effective January 1,
2007, participation is via automatic enrollment; employees may
elect to opt out of the plan. Company contributions to the plan
are now based on employees age and service as well as a
percentage of employee contributions.
The cost of these plans during each of the three years in the
period ended December 31, 2008, was $8.2 million in
2008, $9.9 million in 2007 and $5.6 million in 2006.
Prior to September 30, 2003, the Company also provided
medical benefits to certain eligible retired employees. These
benefits were funded when the claims were incurred. Participants
generally became eligible for these benefits at age 60
after completing at least fifteen years of service. The plan
provided for the payment of specified percentages of medical
expenses reduced by any deductible and payments made by other
primary group coverage and government programs. Effective
September 30, 2003, the Company amended the retiree medical
plan and effectively canceled coverage for all eligible active
employees except for retirees and a limited group that qualified
under a formula based on age and years of service. Accumulated
postretirement benefit liabilities of $1.7 million and
$2.3 million at December 31, 2008 and 2007,
respectively, were fully accrued. The net periodic
postretirement benefit costs have not been significant during
the three-year period ended December 31, 2008.
44
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
NOTE 7
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE
MEASUREMENTS
Derivative financial instruments are reported on the balance
sheet at their respective fair values. Changes in fair value are
recognized either in earnings or equity, depending on the nature
of the underlying exposure being hedged and how effective a
derivative is at offsetting price movements in the underlying
exposure. The Companys derivative positions existing at
December 31, 2008 qualified for hedge accounting under
SFAS No. 133, except as described below.
To manage interest costs, the Company utilizes interest rate
swaps in combination with its funded debt. Interest rate swaps
executed in conjunction with long-term private placements
effectively convert fixed rate debt to variable rate debt. At
December 31, 2008, the Companys receive fixed, pay
variable swap agreements with a financial institution terminates
in 2012. These agreements are designated as fair value hedges.
In the second quarter of 2005, the Company de-designated a fair
value hedge. The derivative does not qualify for hedge
accounting under SFAS No. 133 and is marked-to-market
with the offsetting adjustment recorded to income.
At December 31, 2008, the Company was also party to
interest rate swap agreements with financial institutions in
which the Company pays interest at a fixed rate and receives
interest at variable LIBOR rates. These derivative instruments
terminate in 2010. These interest rate swap agreements are
designated as cash flow hedges. In the second quarter of 2005,
the Company entered into an interest rate swap which was not
designated as a hedge and is marked-to-market with the
offsetting adjustment recorded to income.
The fair values of interest rate swaps are based on quotes from
financial institutions. The following table summarizes the
Companys interest rate swaps at December 31, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Swaps
|
|
|
Cash Flow Swaps
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Notional amount
|
|
$
|
50.0
|
|
|
$
|
138.7
|
|
|
$
|
60.0
|
|
|
$
|
135.0
|
|
Fair value
|
|
|
1.7
|
|
|
|
(1.3
|
)
|
|
|
(2.7
|
)
|
|
|
(0.9
|
)
|
Average pay rate
|
|
|
4.9
|
%
|
|
|
7.7
|
%
|
|
|
6.5
|
%
|
|
|
6.0
|
%
|
Average receive rate
|
|
|
6.2
|
%
|
|
|
6.8
|
%
|
|
|
3.6
|
%
|
|
|
6.1
|
%
|
In 2008 and 2007, the Company cancelled various interest rate
swaps associated with its debt portfolio in response to
movements in the interest rate market. These transactions
resulted in net cash payments of $0.0 million and
$0.3 million in 2008 and 2007, respectively. The associated
losses on the interest rate swaps are being amortized to
interest expense over the life of the underlying debt. As of
December 31, 2008 and 2007, the Company had unamortized
gains of $0.6 million and $0.8 million, respectively.
The Company manages the volatility of cash flows caused by
fluctuations in currency rates by entering into foreign exchange
forward contracts and options. These derivative instruments may
be designated as cash flow hedges that hedge portions of the
Companys anticipated third-party purchases and forecast
sales denominated in foreign currencies. The Company also enters
into foreign exchange contracts that are not intended to qualify
for hedge accounting in accordance with SFAS 133, but are
intended to offset the effect on earnings of foreign currency
movements on short and long term intercompany transactions.
Gains and losses on these derivative instruments are recorded
through earnings.
45
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The following table summarizes the Companys foreign
exchange contracts at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Foreign exchange forwards
|
|
$
|
48.6
|
|
|
$
|
(1.3
|
)
|
|
$
|
55.9
|
|
|
$
|
(3.2
|
)
|
Options
|
|
|
10.6
|
|
|
|
1.6
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59.2
|
|
|
$
|
0.3
|
|
|
$
|
66.2
|
|
|
$
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects $1.2 million of pre-tax net losses on
cash flow hedges that are reported in accumulated other
comprehensive income as of December 31, 2008 to be
reclassified into earnings in 2009 as the respective hedged
transactions affect earnings.
For assets and liabilities measured at fair value on a recurring
basis during the period under the provisions of FAS 157,
the Company uses an income approach to value the assets and
liabilities for outstanding derivative contracts which include
interest rate swap and foreign currency forward contracts. This
income approach consists of a discounted cash flow model that
takes into account the present value of future cash flows under
the terms of the contracts using current market information as
of the reporting date such as prevailing interest rates and
foreign currency spot and forward rates. As noted in
Note 2, the Company adopted the provisions of FAS 157
with respect to its financial assets and liabilities that are
measured at fair value within the consolidated financial
statements. The Company has deferred the application of the
provisions of this statement to its non-financial assets and
liabilities in accordance with FSP 157-b. The following
table provides a summary of the fair values of assets and
liabilities under FAS 157:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4.4
|
|
|
$
|
|
|
|
$
|
4.4
|
|
|
$
|
|
|
Short-term investments
|
|
|
10.0
|
|
|
|
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
(5.1
|
)
|
|
$
|
|
|
|
$
|
(5.1
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8
STOCK-BASED COMPENSATION
The Companys stock benefit plans, approved by the
Companys shareholders, and administered by the
Compensation and Benefits Committee of the Board of Directors of
the Company, provides for the grant of incentive and
non-incentive stock options, restricted stock and other
stock-based awards or units to key employees and directors. The
plans, as amended, authorize the grant of up to 4.0 million
benefit shares or units through April 2015. These share or unit
amounts exclude amounts that were issued under predecessor plans.
Stock options are granted at the fair market value of the shares
on the date of grant. Stock options normally become exercisable
at a rate of one-third annually and in full on the third
anniversary date. All options and rights must be exercised
within ten years from date of grant. At the Companys
discretion, vested stock option holders are permitted to elect
an alternative settlement method in lieu of purchasing common
stock at the option price. The
46
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
alternative settlement method permits the employee to receive,
without payment to the Company, cash, shares of common stock or
a combination thereof equal to the excess of market value of
common stock over the option purchase price. The Company intends
to settle all such options in common stock.
The weighted average fair value of options granted during 2008,
2007 and 2006 was $3.60, $5.68, and $6.21, respectively. The
fair value of each option grant was estimated using the
Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Dividend yield
|
|
|
1.7
|
%
|
|
|
1.7
|
%
|
|
|
1.3
|
%
|
Expected volatility
|
|
|
33
|
%
|
|
|
31
|
%
|
|
|
30
|
%
|
Risk free interest rate
|
|
|
3.2
|
%
|
|
|
4.4
|
%
|
|
|
4.6
|
%
|
Weighted average expected option life in years
|
|
|
6.4
|
|
|
|
7
|
|
|
|
7
|
|
The expected life of options represents the weighted average
period of time that options granted are expected to be
outstanding giving consideration to vesting schedules and the
Companys historical exercise patterns. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of the grant for periods corresponding with
the expected life of the options. Expected volatility is based
on historical volatilities of the Companys common stock.
Dividend yields are based on historical dividend payments.
Stock option activity for the three years ended
December 31, 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
2.7
|
|
|
$
|
17.47
|
|
|
$
|
18.15
|
|
|
$
|
19.15
|
|
Granted
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
11.13
|
|
|
|
15.69
|
|
|
|
16.93
|
|
Cancelled or expired
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(0.7
|
)
|
|
|
16.00
|
|
|
|
19.67
|
|
|
|
21.26
|
|
Exercised
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
15.06
|
|
|
|
16.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2.3
|
|
|
|
2.4
|
|
|
|
2.6
|
|
|
$
|
16.20
|
|
|
$
|
17.47
|
|
|
$
|
18.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1.6
|
|
|
|
1.5
|
|
|
|
1.7
|
|
|
$
|
17.68
|
|
|
$
|
18.28
|
|
|
$
|
18.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information concerning stock
options outstanding as of December 31, 2008 under all plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Remaining Life
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
(in millions)
|
|
|
(in years)
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
$ 7.61 - $11.00
|
|
|
0.4
|
|
|
|
9.2
|
|
|
$
|
10.56
|
|
|
|
|
|
|
$
|
|
|
11.01 - 15.00
|
|
|
0.2
|
|
|
|
7.5
|
|
|
|
13.86
|
|
|
|
0.1
|
|
|
|
13.26
|
|
15.01 - 17.00
|
|
|
1.0
|
|
|
|
4.2
|
|
|
|
16.15
|
|
|
|
0.8
|
|
|
|
16.12
|
|
17.01 - 21.00
|
|
|
0.5
|
|
|
|
2.2
|
|
|
|
19.31
|
|
|
|
0.5
|
|
|
|
19.33
|
|
21.01 - 26.13
|
|
|
0.2
|
|
|
|
1.4
|
|
|
|
22.63
|
|
|
|
0.2
|
|
|
|
22.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
|
|
4.7
|
|
|
$
|
16.20
|
|
|
|
1.6
|
|
|
$
|
17.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The exercise price of stock options outstanding and exercisable
at December 31, 2008 exceeded the market value and
therefore, the aggregate intrinsic value was near zero. The
closing price on December 31, 2008 was $8.21.
47
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Restricted stock awards are granted to employees at no cost.
Through 2004, these awards primarily vested at the rate of 25%
annually commencing one year from the date of award, provided
the recipient was still employed by the Company on the vesting
date. Beginning in 2005, awards primarily cliff vest at the
third anniversary from the date of award, provided the recipient
is still employed by the Company on the vesting date. The cost
of restricted stock awards, based on the fair market value at
the date of grant, is being charged to expense over the
respective vesting periods. The following table summarizes
restricted stock grants for the twelve month period ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
(shares in millions)
|
|
Restricted Shares
|
|
|
Price per Share
|
|
|
Outstanding and non-vested at December 31, 2007
|
|
|
0.8
|
|
|
$
|
16.28
|
|
Granted
|
|
|
0.4
|
|
|
|
10.95
|
|
Vested
|
|
|
(0.2
|
)
|
|
|
15.23
|
|
Cancelled
|
|
|
(0.4
|
)
|
|
|
15.55
|
|
|
|
|
|
|
|
|
|
|
Outstanding and non-vested at December 31, 2008
|
|
|
0.6
|
|
|
$
|
13.86
|
|
|
|
|
|
|
|
|
|
|
The total compensation expense related to all share-based
compensation plans was $2.9 million, $3.5 million, and
$5.8 million for the years ended December 31, 2008,
2007 and 2006, respectively. Also, as of December 31, 2008,
the total remaining unrecognized compensation cost related to
awards of stock options amounted to $2.2 million, which
will be amortized over the weighted-average period of
approximately 1.5 years.
Beginning in 2008, the Company established a long term incentive
plan for Executive Officers under which awards thereunder are
classified as equity in accordance with SFAS 123R. The
ultimate payment of the performance shares units will be based
on the Companys stock performance as compared to the stock
performance of a peer group. Compensation expense for the stock
performance portion of the plan is based on the fair value of
the plan that is determined on the day the plan is established.
The fair value is calculated using a Monte Carlo simulation
model. The total compensation expense for these awards is being
amortized over a three-year service period. Compensation expense
relating to these awards included in the Consolidated Statement
of Operations for 2008 was $0.1 million. As of
December 31, 2008, the unrecognized compensation cost
relating to these plans was $0.6 million, which will be
amortized over the remaining requisite service period of
2 years.
NOTE 9
SHAREHOLDERS EQUITY
The Companys board of directors has the authority to issue
90.0 million shares of common stock at a par value of $1
per share. The holders of common stock (i) may receive
dividends subject to all of the rights of the holders of
preference stock, (ii) shall be entitled to share ratably
upon any liquidation of the Company in the assets of the
Company, if any, remaining after payment in full to the holders
of preference stock and (iii) receive one vote for each
common share held and shall vote together share for share with
the holders of voting shares of preference stock as one class
for the election of directors and for all other purposes. The
Company has 49.3 million and 49.4 million common
shares issued as of December 31, 2008 and 2007,
respectively. Of those amounts 47.7 million and
47.9 million common shares were outstanding as of
December 31, 2008 and 2007, respectively.
The Companys board of directors is also authorized to
provide for the issuance of 0.8 million shares of
preference stock at a par value of $1 per share. The authority
of the board of directors includes, but is not limited to, the
determination of the dividend rate, voting rights, conversion
and redemption features and liquidation preferences. The Company
has not issued any preference stock as of December 31, 2008.
48
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
NOTE 10
ACQUISITIONS
On January 15, 2007, the Company acquired the net assets of
Codespear LLC, a Birmingham, Michigan based, privately held
developer of specialized software used in emergency management
situations, for $16.6 million in cash plus an additional
$0.8 million payment based on working capital and
contingent consideration adjustments which were finalized in the
third quarter of 2007. In addition, there are potential
additional earnout payments for up to three years following the
transaction, if specific performance targets are met. Any
additional payments related to this contingency will be
accounted for as additional goodwill, however, as of
December 31, 2008, the performance targets have not been
met and no additional payments are due. As a result of the
acquisition, the Company recorded the addition of
$12.2 million of goodwill in 2007, which was deductible for
tax purposes, and $5.2 million of acquired developed
software. The results since the date of acquisition are included
in the Safety and Security Systems segment.
On July 25, 2007, the Company acquired the net assets of
Riverchase Technologies, a software development firm that
specializes in serving the municipal safety market and includes
a suite of products for small to medium size municipalities that
includes CAD, RMS, mobile data, mobile video and mobile handheld
solutions which enable emergency response agencies to manage and
communicate remotely with their fleets. The purchase price was
$6.7 million in cash plus an additional payment of
$0.2 million for a working capital adjustment which was
paid in the first quarter of 2008, as well as potential earnout
payments for up to two years following the transaction, if
specific performance targets are met. As of December 31,
2008, these performance targets have not been met and no
additional payments are due. As a result of the acquisition, the
Company recorded the addition of $2.9 million of goodwill
in 2007, which was deductible for tax purposes,
$3.6 million of acquired developed software and
$0.2 million of net assets. The results since the date of
acquisition are included in the Safety and Security Systems
segment.
On August 6, 2007, the Company acquired 100% of the voting
interests in PIPS Technology Limited, a private company limited
by shares incorporated in England and Wales, (the UK Company),
and PIPS Technology, Inc., a Tennessee corporation (the
U.S. Company), together referred to as the PIPS Technology
companies (PIPS Technologies). PIPS Technologies is
a global leader in the design and manufacture of automated
license plate recognition (ALPR) technology and
optical character recognition software. ALPR solutions are used
in control and surveillance applications in markets such as
traffic and tolling, law enforcement, public safety and access
control. ALPR-enabled cameras are used on emergency vehicles and
mounted on stationary support structures at access entry and
tolling points to capture license plate details for tolling,
congestion zone charging and law enforcement purposes. The
results since the date of acquisition are included in the Safety
and Security Systems segment.
PIPS Technologies was acquired for approximately
$123.4 million in cash plus acquisition related costs of
approximately $3.0 million. The purchase price is subject
to potential additional earnout payments through 2010, if
specific performance targets are met. Additional payments
related to this contingency, if any, will be accounted for as
goodwill, however, as of December 31, 2008, the performance
targets have not been met and no additional payments are due.
The acquisition was funded through available cash balances and
borrowings under the Companys credit facility.
49
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The allocation of the purchase price is shown in the table below.
|
|
|
|
|
($ in million)
|
|
|
|
|
Goodwill
|
|
$
|
75.5
|
|
Intangible assets:
|
|
|
|
|
Customer relationships
|
|
|
20.5
|
|
Technology
|
|
|
6.0
|
|
Trade name
|
|
|
26.1
|
|
Plant, property & equipment
|
|
|
0.8
|
|
Deferred tax asset
|
|
|
5.7
|
|
Deferred tax liability
|
|
|
(15.1
|
)
|
Other assets acquired and liabilities assumed
|
|
|
6.9
|
|
|
|
|
|
|
Total acquisition cost
|
|
$
|
126.4
|
|
|
|
|
|
|
The acquisition gave rise to goodwill of $75.5 million as
the Company paid a premium over the fair value of the net
tangible and identifiable intangible assets acquired in the PIPS
Technologies acquisition, largely due to the growth prospects of
the business, its strategic fit and revenue synergies. ALPR
technology is experiencing tremendous demand throughout the
world as governments and municipalities seek the dual purpose of
providing security and increased revenues through such
applications as tolling congestion. The acquisition adds a core
building block of video analytics to the Companys safety
and security systems from which other operating businesses could
build. The Safety and Security Systems Group was already
integrating ALPR cameras from PIPS Technologies in its largest
parking systems, and the camera technology and systems can be
integrated into other core offerings.
Goodwill and trade name intangible assets have indefinite lives
and therefore will not be subject to amortization, but will
instead be subject to an annual impairment test. Approximately
29 million of the goodwill is deductible by a
European subsidiary of the Company. Technology will be amortized
over a
10-year life
and customer relationships will be amortized over a
10-year life
in the U.K and a
5-year life
in the U.S.
The unaudited financial information in the table below
summarizes the combined results of operations of the Company and
PIPS Technologies, on a pro forma basis, as though PIPS
Technologies had been acquired as of January 1, 2006. The
pro forma financial information is presented for informational
purposes only and is not indicative of the results of operations
that would have been achieved if the acquisition had taken place
at the beginning of the period or of results that may occur in
the future. Proforma financial information for the acquisition
of Codespear and Riverchase has not been presented due to
immateriality.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
($ in millions)
|
|
|
|
|
|
Proforma net sales
|
|
$
|
948.2
|
|
|
$
|
819.1
|
|
Proforma income from continuing operations
|
|
|
39.4
|
|
|
|
32.9
|
|
Proforma net income
|
|
|
54.6
|
|
|
|
24.4
|
|
Proforma earnings per share from continuing
operations basic and diluted
|
|
$
|
0.82
|
|
|
$
|
0.68
|
|
50
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
NOTE 11
GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with SFAS No. 142, Goodwill and
Other Intangible Assets, goodwill and other intangible
assets deemed to have indefinite lives are no longer amortized
but are subject to annual impairment tests. Other intangible
assets continue to be amortized over their useful lives.
Changes in the carrying amount of goodwill for the years ended
December 31, 2008 and 2007, by operating segment, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
|
|
|
Fire
|
|
|
Safety
|
|
|
|
|
|
|
Solutions
|
|
|
Rescue
|
|
|
Security
|
|
|
Total
|
|
|
December 31, 2006
|
|
$
|
126.2
|
|
|
$
|
32.4
|
|
|
$
|
90.0
|
|
|
$
|
248.6
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
90.5
|
|
|
|
90.5
|
|
Translation
|
|
|
0.5
|
|
|
|
3.1
|
|
|
|
2.0
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
126.7
|
|
|
|
35.5
|
|
|
|
182.5
|
|
|
|
344.7
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Translation
|
|
|
(0.2
|
)
|
|
|
(2.5
|
)
|
|
|
(14.2
|
)
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
126.5
|
|
|
$
|
33.0
|
|
|
$
|
168.6
|
|
|
$
|
328.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under SFAS No. 142, the Company is required to test
its goodwill annually for impairment; the Company performs this
test in the fourth quarter. The Company performed this test in
2008 and determined that there was no impairment. The Company
determined the fair value of each reporting unit by calculating
the present value of expected future cash flows. See
Note 10 for a discussion of goodwill additions as a result
of acquisitions made in the year ended December 31, 2007.
OTHER INTANGIBLE ASSETS
In 2008, the carrying value of other intangible assets was
impacted by changes in foreign currency exchange rates. In 2007,
the Company acquired intangible assets through acquisition. See
Note 10 for a discussion of intangible additions as a
result of acquisitions made in the year ended December 31,
2007. Following are the carrying amount and accumulated
amortization of these assets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Definite lived (amortizable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed software
|
|
|
6
|
|
|
$
|
24.6
|
|
|
$
|
(14.1
|
)
|
|
$
|
10.5
|
|
|
$
|
24.2
|
|
|
$
|
(10.9
|
)
|
|
$
|
13.3
|
|
Patents
|
|
|
5-10
|
|
|
|
0.6
|
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
(0.4
|
)
|
|
|
0.2
|
|
Customer relationships
|
|
|
5-10
|
|
|
|
15.0
|
|
|
|
(2.3
|
)
|
|
|
12.7
|
|
|
|
20.1
|
|
|
|
(0.9
|
)
|
|
|
19.2
|
|
Technology
|
|
|
10
|
|
|
|
4.5
|
|
|
|
(0.6
|
)
|
|
|
3.9
|
|
|
|
5.9
|
|
|
|
(0.3
|
)
|
|
|
5.6
|
|
Other
|
|
|
3
|
|
|
|
1.8
|
|
|
|
(0.8
|
)
|
|
|
1.0
|
|
|
|
1.8
|
|
|
|
(0.5
|
)
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.5
|
|
|
|
(18.2
|
)
|
|
|
28.3
|
|
|
|
52.6
|
|
|
|
(13.0
|
)
|
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
|
|
|
|
19.5
|
|
|
|
|
|
|
|
19.5
|
|
|
|
25.6
|
|
|
|
|
|
|
|
25.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
66.0
|
|
|
$
|
(18.2
|
)
|
|
$
|
47.8
|
|
|
$
|
78.2
|
|
|
$
|
(13.0
|
)
|
|
$
|
65.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Amortization expense for the years ended December 31, 2008,
2007 and 2006 totaled $5.2 million, $4.2 million and
$2.0 million, respectively. The Company estimates that the
aggregate amortization expense will be $5.4 million in
2009, $5.1 million in 2010, $5.0 million in 2011,
$3.9 million in 2012, $2.3 million in 2013 and
$6.6 million thereafter. Actual amounts of amortization
expense may differ from estimated amounts due to additional
intangible asset acquisitions, changes in foreign currency
exchange rates, impairment of intangible assets, accelerated
amortization of intangible assets and other events.
NOTE 12
DISCONTINUED OPERATIONS
The following table presents the operating results of the
Companys discontinued operations for the three-year period
ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
E-ONE (Fire Rescue Segment)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
157.1
|
|
|
$
|
201.3
|
|
|
$
|
278.5
|
|
Costs and expenses
|
|
|
(168.2
|
)
|
|
|
(226.9
|
)
|
|
|
(283.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(11.1
|
)
|
|
|
(25.6
|
)
|
|
|
(5.1
|
)
|
Income tax benefit
|
|
|
4.9
|
|
|
|
10.4
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(6.2
|
)
|
|
$
|
(15.2
|
)
|
|
$
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Die and Mold Operations (Tool Segment)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
39.7
|
|
|
$
|
119.3
|
|
|
$
|
122.9
|
|
Costs and expenses
|
|
|
(39.2
|
)
|
|
|
(112.5
|
)
|
|
|
(114.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
0.5
|
|
|
|
6.8
|
|
|
|
8.3
|
|
Income tax expense
|
|
|
(0.7
|
)
|
|
|
(3.0
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
$
|
(0.2
|
)
|
|
$
|
3.8
|
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refuse and Cutting Tool Operations (ESG and Tool Segments)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
3.0
|
|
|
$
|
83.9
|
|
Costs and expenses
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
(86.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
0.2
|
|
|
|
(2.1
|
)
|
Income tax benefit (expense)
|
|
|
1.9
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
1.9
|
|
|
$
|
0.1
|
|
|
$
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
4.3
|
|
|
$
|
7.4
|
|
|
$
|
8.2
|
|
Costs and expenses
|
|
|
(5.7
|
)
|
|
|
(8.2
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1.4
|
)
|
|
|
(0.8
|
)
|
|
|
(0.5
|
)
|
Income tax benefit
|
|
|
1.7
|
|
|
|
2.2
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
0.3
|
|
|
$
|
1.4
|
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the Companys
E-ONE
businesses were discontinued in 2008 leaving just the
Companys Bronto businesses within its Fire Rescue segment.
On August 5, 2008, the Company sold 100% of the shares of
E-ONE, Inc.
located in Ocala, Florida for approximately $20.0 million
subject to an initial working capital adjustment that
52
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
resulted in cash proceeds of $0.5 million at closing. The
final working capital adjustment was concluded in December 2008,
resulting in additional cash proceeds of $2.9 million
received January 2009. The after-tax loss on the sale for the
year ended December 31, 2008 totaled $85.0 million,
which related primarily to after-tax impairment charges that
reflect the fair value of the net assets and the impairment of
$6.2 million of goodwill attributable to the
E-ONE
business. The goodwill impairment computation was based on the
relative fair values of
E-ONE and
Bronto, the two reporting units within the Fire Rescue Group. At
the time of the impairment,
E-ONE was
available for sale, so the best determination of its value was
the contractual sales price the Company had negotiated with a
buyer for the business. Brontos value was based on a
discounted cash flow analysis using its projected cash flows
over a five year period. The $6.2 million attributed to
E-ONE
represented 14% of the total goodwill of the group.
The Company provided its domestic municipal customers with the
opportunity to finance purchases through leasing arrangements
with the Company. Following the sale of the
E-ONE
business, the Company elected to discontinue its financial
services activities through divestiture of this leasing
portfolio. During the year, the Company sold its municipal
leasing portfolio to Banc of America Public Capital Corp. in
several tranches for a gain of $0.3 million. Proceeds from
the sale of the portfolio were used to repay debt associated
with these assets. In October, 2008, the Company discontinued
entirely its practice of providing lease financing to its
customers and all other financial service activities,
principally its dealer floor planning.
On April 21, 2008, the Company completed the sale of Dayton
Progress Corporation (excluding Dayton Hong Kong) and its
subsidiary, PCS Company, referred to collectively as Die
and Mold Operations, for $65.5 million. The after-tax
loss on disposal for the year ended December 31, 2008 was
$35.3 million primarily due to asset impairments; included
in the loss on disposal is the remaining goodwill of the Tool
Group of $55.8 million. The Company also decided to close
the Dayton Hong Kong operation incurring a $4.6 million
pre-tax impairment charge related to this business for the year
ended December 31, 2008. The Die and Mold operations
produced special precision perforating components for metal
stamping applications and tooling components for the plastic
injection mold and the die cast industries. Sale proceeds were
used to repay debt.
On January 31, 2007, the Company completed the sale of
Manchester Tool Company, On Time Machining Company and Clapp
Dico, referred to collectively as the Cutting Tool
Operations which were part of the Tool Group for
$65.4 million. There was a net gain on disposal of
discontinued operations of $24.6 million for the year ended
December 31, 2007. These operations produced industrial
cutting tools, engineered components and advanced materials
consumed in production processes. No asset impairment charges
were recorded in conjunction with the disposal.
In December 2005, the Company determined that its investment in
the Refuse business operating under the Leach brand name was no
longer strategic. The majority of the assets of the business
have been sold since that time and the operation has been shut
down. For the years ended December 31, 2008 and 2007, the
Company recorded an after-tax gain of $2.2 million and
$0.5 million, respectively, primarily related to a revision
in the estimate of product liability reserves. For the year
ended December 31, 2006, the loss from disposal of
discontinued operations included $9.7 million of after tax
impairment charges related to the disposal of refuse assets.
53
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
The following table shows an analysis of assets and liabilities
of discontinued operations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
($ in millions)
|
|
|
|
|
|
Current assets
|
|
$
|
6.9
|
|
|
$
|
133.0
|
|
Properties and equipment
|
|
|
0.2
|
|
|
|
38.1
|
|
Long-term assets
|
|
|
|
|
|
|
64.4
|
|
Financial service assets, net
|
|
|
5.6
|
|
|
|
146.8
|
|
|
|
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
$
|
12.7
|
|
|
$
|
382.3
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
6.1
|
|
|
|
46.5
|
|
Long-term liabilities
|
|
|
13.1
|
|
|
|
26.9
|
|
Financial service liabilities
|
|
|
5.2
|
|
|
|
137.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of discontinued operations
|
|
$
|
24.4
|
|
|
$
|
210.8
|
|
|
|
|
|
|
|
|
|
|
Included in long-term liabilities is $7.7 million relating
to estimated product liability obligations of the
North American refuse truck body business.
NOTE 13
RESTRUCTURING
In December 2008, the Company announced an objective to reduce
salaried personnel costs by 13% in 2009 when compared to 2008
levels. This cost reduction was to affect not only salaries,
benefits and equity compensation, but also contracted services
and travel expenses. A process was created to review every
organizational chart and employee reporting relationship within
the company with the purpose of increasing spans of control of
each manager and to better improve management oversight. In
addition, certain contracted services were reviewed for
termination. A charge of $2.7 million was recorded in the
fourth quarter of 2008 to reflect severance and other costs
associated with a salaried employee reduction in force and
contract terminations. The Company expects all of these actions
will be completed by March 31, 2009.
The following table summarizes the 2008 restructuring charges by
segment and the total charges estimated to be incurred:
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
|
|
|
Restructuring
|
|
|
Estimate of
|
|
Group
|
|
Charges in 2008
|
|
|
Total Charges
|
|
|
Safety and Security
|
|
$
|
1.8
|
|
|
$
|
1.8
|
|
Environmental Solutions
|
|
|
0.3
|
|
|
|
0.3
|
|
Corporate
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.7
|
|
|
$
|
2.7
|
|
|
|
|
|
|
|
|
|
|
The following presents an analysis of the restructuring reserves
for the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Other
|
|
|
Total
|
|
|
Balance as of January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Charges to expense
|
|
|
2.1
|
|
|
|
0.6
|
|
|
|
2.7
|
|
Cash payments
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
2.0
|
|
|
$
|
0.6
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Severance charges in 2008 consisted of termination and benefit
costs for salaried manufacturing, engineering, sales, general
and administrative employees that will be involuntarily
terminated in the first quarter of 2009. There were no asset
impairment charges associated with this restructuring in 2008.
The Company incurred no restructuring charges in the years ended
December 31, 2007 and 2006.
NOTE 14
LEGAL PROCEEDINGS
The Company is subject to various claims, other pending and
possible legal actions for product liability and other damages
and other matters arising out of the conduct of the
Companys business. The Company believes, based on current
knowledge and after consultation with counsel, that the outcome
of such claims and actions will not have a material adverse
effect on the Companys consolidated financial position or
the results of operations. However, in the event of unexpected
future developments, it is possible that the ultimate resolution
of such matters, if unfavorable, could have a material adverse
effect on the Companys results of operations.
The Company has been sued in Chicago, Illinois by firefighters
seeking damages claiming that exposure to the Companys
sirens has impaired their hearing and that the sirens are
therefore defective. There are presently 33 cases filed during
the period
1999-2004,
involving a total of 2,443 plaintiffs pending in the Circuit
Court of Cook County, Illinois. The trial of the first 27 of
these plaintiffs claims began on March 18, 2008 and
ended on April 25, 2008, when a Cook County jury returned a
unanimous verdict in favor of the Company and absolved the
Company of any liability for all 27 of these claims, which had
been consolidated for trial. Since the first trial concluded,
another 63 cases were dismissed, all during 2008. An
additional 40 Chicago firefighter plaintiffs were selected for
trial to begin on January 5, 2009. Plaintiffs counsel
later moved to reduce the number of plaintiffs from 36 to 9.
Trial of these nine plaintiffs began on Feb 6, 2009 and
concluded on February 20 with a verdict returned against
the Company and for the plaintiffs in varying amounts totaling
$0.4 million. Additional trial dates of Chicago plaintiff
firefighters are scheduled during 2009 and 2010.
Federal Signal has been sued outside of the Cook County venue.
With the exception of matters on appeal, Federal Signal is
currently a defendant in 6 such hearing loss lawsuits in
Pennsylvania, involving a total of 6 plaintiffs. Two of these
lawsuits have been set for trial during the
4th Quarter
of 2009. All of the plaintiffs have stipulated to or claimed
less than $75,000 in damages. Four cases in the Supreme Court of
Kings County, New York were dismissed on January 25, 2008
after the court granted Federal Signals motion to dismiss
which eliminated all claims pending in New York. The Court
subsequently denied reconsideration of its ruling. These cases
are on appeal. All plaintiffs who have filed hearing loss cases
against Federal Signal in other jurisdictions have dismissed
their claims. Plaintiffs attorneys have threatened to file
additional lawsuits. The Company intends to vigorously defend
all of these lawsuits. The Company successfully defended
approximately 41 similar cases in Philadelphia, Pennsylvania in
1999 resulting in a series of unanimous jury verdicts in favor
of the Company.
Federal Signals ongoing negotiations with CNA over
insurance coverage resulted in an agreement under which CNA
reimbursed $3.7 million to the Company during the year
ended December 31, 2007 for past defense costs. CNA agreed
to cover a percentage of defense costs amounting to
approximately $1.7 million of which $1.4 million had
been received through December 31, 2008.
NOTE 15
SEGMENT AND RELATED INFORMATION
The Company has three continuing operating segments as defined
under SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. Business units
are organized under each segment because they share certain
characteristics, such as technology, marketing, distribution and
product application, which create long-term synergies. The
principal activities of the Companys operating segments
are as follows:
Information regarding the Companys discontinued operations
is included in Note 12 Discontinued Operations.
The segment information included herein has been reclassified to
reflect such discontinued operations.
55
FEDERAL
SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
($ in
millions, except per share
data) (Continued)
Safety and Security Systems Safety and
Security Systems Group companies produce a variety of systems
for automated license plate recognition, campus and community
alerting, emergency vehicles, first responder interoperable
communications, industrial communications and command, municipal
networked security and parking revenue and access control for
municipal, governmental and industrial applications. Specific
products include access control devices, lightbars and sirens,
public warning sirens, public safety software and automated
license plate recognition cameras. The groups products are
sold primarily to industrial, municipal and governmental
customers.
Fire Rescue Fire Rescue manufactures
articulated and telescopic aerial platforms for rescue and fire
fighting and for maintenance purposes. This group sells to
municipal and industrial fire services, civil defense
authorities, rental companies, electric utilities and industrial
customers.
Environmental Solutions Environmental
Solutions manufactures a variety of self-propelled street
cleaning vehicles, vacuum loader vehicles, municipal catch
basin/sewer cleaning vacuum trucks and water blasting equipment.
Environmental Solutions sells primarily to municipal and
government customers and industrial contractors.
Net sales by operating segment reflect sales of products and
services and fi